While the chances of Greece getting booted from the eurozone — a so-called “Grexit” — seem to get higher by the day, the markets don’t seem to think a Grexit will dramatically impact the global economy.
But some things, like yields on the 10-year Treasury, are actually going wild. Investors seeking safe havens for their money piled into U.S. Treasuries on Monday, sending the yield on the 10-year down to 2.35%, off its recent high of 2.5%.
In other words, Treasury yields are OK … but not great yet.
That’s why, if you’re looking for a higher return and willing to take a little more risk, looking at blue-chip stocks instead makes a lot more sense. Even the worst-yielding of the top 10 dividend stocks in the Dow pays out 3.1% annually — a premium of 75 basis points to the T-Note.
So, without further ado, here are the top 10 Dow dividend stocks for July, with yields and performances through June 29.
Top 10 Dow Dividend Stocks #10: IBM (IBM)
Dividend Yield: 3.2%
YTD Performance: +2%
No, IBM (IBM) isn’t setting any performance records in 2015, but after all neither is the S&P 500, which is only up 2% year-to-date.
And with the world’s most famous investor, Warren Buffett, adding onto his already sizable IBM position in the most recent quarter you’re forgiven for scratching your head and asking yourself: “Why?”
The thesis is pretty simple, actually.
Big Blue has been voraciously repurchasing its own shares — so voraciously, in fact, that IBM has put up $40 billion cash to take its common stock off the stock market in the last three years alone. Moreover, while there are nine blue-chip Dow stocks with dividend yields higher than IBM’s, a 20-year track record of increasing its dividend payment isn’t too shabby.
Considering that only about a third of the company’s earnings go toward its dividend, the solid yield and regular dividend increases should be sustainable for years to come.
And IBM stock currently trades for just 10 times forward earnings to boot.
Top 10 Dow Dividend Stocks #9: Coca-Cola (KO)
Dividend Yield: 3.3%
YTD Performance: -6%
With the Fourth of July nearly upon us, I recently named Coca-Cola (KO) one of 10 “All-American Stocks to Buy.” While there’s a legitimate concern that soda sales are falling in the U.S. (because they are), you can rest easy knowing that Coca-Cola sees this disturbing secular trend.
And more importantly, it’s doing something about it.
The soda giant took a huge stake in Monster Beverage (MNST) last year in a cash-and-asset swap deal. The energy drink area is one of the few beverage subcategories actually demonstrating any meaningful growth, and with analysts recently declaring MNST could boast “best in class growth” potential, I’d have to agree.
KO is also one of the best dividend stocks in the stock market today, having raised its dividend payment for 53 consecutive years.
Aside from that consistency, Coca-Cola’s 17% stake in Monster Beverage should let investors rest easy when it comes to buying and holding this stock.
Top 10 Dow Dividend Stocks #8: Pfizer (PFE)
Dividend Yield: 3.3%
YTD Performance: +8%
Shares of Big Pharma leader Pfizer (PFE) have been crushing the broader market in 2015. I recently named Pfizer one of seven dividend stocks to buy for their buckets of cash, and lauded the company’s use of its cash pile — namely, PFE pays a substantial, longstanding dividend.
That’s very much unlike large-cap lowlife Google (GOOG, GOOGL), which refuses to “conform” and pay a dividend even though it’s painfully obvious to everyone else that it’s about damn time that happened.
But I digress.
I also clapped Pfizer on the back for investing in its future and outspending rivals on R&D:
“In 2014, PFE spent $8.31 billion (16.8% of revenues) on research & development, up dramatically from the $6.55 billion (12.7% of revenues) in 2013.”
R&D is one of the few expenses that, when they rise, investors should actually get jazzed about. It’s a decent indicator of pipeline potential, and shows a willingness to grow organically rather than solely through expensive acquisitions that can often devolve into bidding wars against rivals.
Top 10 Dow Dividend Stocks #7: Procter & Gamble (PG)
Dividend Yield: 3.4%
YTD Performance: -14%
Just about any stock with some cash lying around can pay a dividend — and even a high one for that matter! But the best dividend stocks aren’t the best because they yield so much — they’re the best dividend stocks because they have a sustainable dividend and a history of increasing it, year after year.
PG’s current payout ratio is a manageable 66% of this year’s estimated earnings, and the company has increased its dividend every year since 1957, when Dwight D. Eisenhower was president.
As for the business, Procter & Gamble has recently been trying to get leaner, focusing on the 70 to 80 core brands that drive between 90% and 95% of its revenue and profits. That’s why PG just reportedly sold a huge chunk of its beauty business to Coty (COTY) for as much as $12 billion.
Top 10 Dow Dividend Stocks #6: General Electric (GE)
Dividend Yield: 3.4%
YTD Performance: +5%
Yes, it’s true: General Electric (GE) stock has been outperforming Procter & Gamble thus far this year, and it pays a marginally higher dividend. If you were forced to choose between the two, what more could you want?
Well, if you’re really hunting for some of the best dividend stocks in the stock market today, you’ll want to consider the reliability of GE’s dividend.
Admittedly, that’s where P&G looks a little better.
The financial crisis nearly took GE with it, as its GE Capital division got hopelessly entangled in the subprime mortgage mess. In 2009, the company dramatically trimmed its quarterly dividend payout, cutting it from 31 cents per quarter to just a dime.
To try to avoid such future calamities in the future, GE is now essentially diversifying itself out of financials, selling its GE Capital lending division to a number of buyers for tens of billions of dollars.
GE has been trying to make amends on the dividend front, however, quickly raising its dividend back up to 23 cents quarterly.
Top 10 Dow Dividend Stocks #5: Exxon Mobil (XOM)
Dividend Yield: 3.5%
YTD Performance: -10%
Let’s get this straight: Exxon Mobil (XOM) isn’t just a dividend all-star. It’s a veritable stud. I’m talking hall of fame status.
XOM is one of just a handful of dividend stocks that literally has paid investors for more than a century; Exxon has paid out cash every year since 1884.
Listen to the crowd here at Dividend Arena — they’re chanting “M-V-P! M-V-P!” Dollars are lazily falling from the rafters to long-term dividend investors that have been in the stock for years, even decades.
“That’s my next one, right there. Come to Mama!” Darby Ellwhistle was sitting in the seat next to me, her big, brown eyes fixated on a wad of 73 one-dollar bills — or the quarterly payment you can expect if you own 100 shares of XOM, as Ms. Ellwhistle does.
“Seems to be taking its time,” I say, scanning the arena and looking desperately for a place to get some food while the XOM dividend makes its painfully slow descent. “How much longer, d’ya think?” I ask Ms. Ellwhistle.
“Not much longer. If you bought XOM stock before 5/11/15, you’ll get your dividend on 6/10/15.”
“Oh,” I said. And as I noticed a very familiar restaurant chain on the other side of the arena, I counted my lucky stars and bid farewell to Ms. Ellwhistle.
Top 10 Dow Dividend Stocks #4: McDonald’s (MCD)
Dividend Yield: 3.5%
YTD Performance: +3%
There it is: McDonald’s (MCD), the worlds most famous fast food chain.
You can find yourself a nice dividend with MCD, that’s certainly true. It’s just that — I looked around, making sure I didn’t go to the wrong place — I was the only one in line at McDonald’s.
Then again, considering the constant deterioration of U.S. same-store sales, I shouldn’t be surprised. In May, SSS fell 0.3% globally, led by declines of 2.2% in the U.S. and 3.2% in the Asia/Pacific, Middle East and Africa region.
The situation has gotten so depressing that McDonald’s is actually discontinuing the practice of releasing monthly comps figures after the June numbers are given.
Still, Mickey D’s is doing just fine. And with 38 straight years of dividend increases and a 3.5% yield, there’s no denying MCD is one of the better pure-play dividend stocks out there.
Top 10 Dow Dividend Stocks #3: Caterpillar (CAT)
Sure, Caterpillar (CAT) might not exactly be crushing it right now, but that’s not exactly unusual.
I’m not saying that CAT stock is a long-term underperformer; on the contrary, if you’d bought Caterpillar stock 30 years ago, you’d be up 1,978%, more than double the S&P 500 (+984%).
But that’s not all: If you include dividends in those very same calculations, you would’ve made 3,612%! Remarkable!
Caterpillar’s end products, which are largely sold to the mining and manufacturing industries, are infamously cyclical, so lulls like these will happen from time to time.
But when demand starts picking back up (read “higher commodity prices”), CAT will be the one reaping the rewards.
Top 10 Dow Dividend Stocks #2: Chevron (CVX)
Dividend Yield: 4.4%
YTD Performance: -13%
Second-to-last on July’s dividend stocks breakdown is Chevron (CVX), the massive oil company that makes an extra $325 million to $350 million every time the price of Brent crude rises by a single dollar.
According to Bloomberg, that’s a great thing for Chevron moving forward:
“With just four trading days left in the quarter, Brent’s average is up about $8.40 a barrel versus the first quarter — representing $2.8 billion in additional cash flow from operations for the No. 2 U.S. oil explorer.”
Not too shabby!
It’s hard not to like a 4%-plus dividend, and with these still-battered and beaten energy stocks staring in the face and practically daring me to invest in them, I might just do it.
I actually happen to think that both CVX and XOM are smart long-term energy stocks to buy.
Top 10 Dow Dividend Stocks #1: Verizon (VZ)
Dividend Yield: 4.7%
YTD Performance: Flat
Phone this one in. Going into July, Verizon (VZ) once again sits atop the list of the best dividend stocks in the Dow, boasting a 4.6% yield.
But it isn’t just Verizon’s hefty dividend that should be getting investors’ attention. The telecom is moving into media and entertainment, as the recently completed $4.4 billion deal between Verizon and AOL (AOL) makes clear.
AOL brings Verizon programmatic advertising programs that are built for mobile. With Verizon planning to debut a mobile video service later this year, there’s more to the deal than initially meets the eye. Plus, if Verizon chooses to differentiate even further from the low-balling networks like T-Mobile US (TMUS) and Sprint (S) with its own premium content, the latter two could be in very big trouble.
As of this writing, John Divine was long shares of GOOG stock and GOOGL stock. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.
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