Stocks might have a mind of their own, but this summer Wall Street’s psyche seems to be aimlessly globetrotting around Europe and China, oblivious to domestic developments that suggest a robust U.S. economy.
Weekly jobless claims fell to a 41-year low in the week ended July 18, clocking in at 255,000. In 2009, that number routinely approached 600,000 jobless claims per week. So … whaddya say, stocks? Isn’t that inspiring?
Apparently not.
The stock market went sideways in July as the S&P 500’s 3% pullback in the past five days erased earlier, decidedly modest gains. Moreover, investors looking to fixed income for attractive returns will be sorely disappointed, as 10-year Treasuries yield about 2.3% — less than the average 3% rate of inflation.
Thankfully there’s another place to find income-producing investments, and all of them blow 10-year Treasury yields out of the water.
Without further ado, let’s check out the 10 best Dow dividend stocks for August:
Top Dow Dividend Stocks #10: Pfizer (PFE)
Dividend Yield: 3.3%
YTD Performance: +10%
Although Pfizer (PFE) has a lower dividend yield than any other company on today’s list, there’s a consolation: Pfizer’s year-to-date returns are the best on the list, with shares up 10% — 10 times the S&P’s meager 1% return this year.
Investors will be watching PFE, a perennial pharmaceutical powerhouse, with rapt attention when the company reports second-quarter earnings Tuesday morning. Consensus estimates call for earnings per share of 52 cents on revenue of $11.42 billion.
Pfizer’s revenue is expected to decline yet again this year, as the “patent cliff” — so termed for the large number of blockbuster drugs that are slated to go off-patent in the next few years — keeps wreaking havoc.
That’s one reason PFE began breaking its results out into four reportable divisions last year, one of them being “Global Established Products,” or GEP. Everything in GEP is either off-patent already or destined to hit the patent cliff soon, and tomorrow’s earnings call may provide hints as to whether Pfizer wants to spin off or sell GEP.
Top Dow Dividend Stocks #9: Procter & Gamble (PG)
Dividend Yield: 3.3%
YTD Performance: -12%
Procter & Gamble (PG), like Pfizer, is another blue-chip dividend stock with falling revenues. But don’t fret just yet: Also like Pfizer, P&G is taking a long, hard look in the mirror and deciding what it likes and doesn’t like about itself.
It might sound like PG stock has self-image issues. That’s because it does. The consumer goods powerhouse has a strong portfolio of globally recognized brands: Tide, Pampers, Bounty, Crest, and Gain are just a few of their world-class brands most households will recognize.
P&G’s problem is that it has acquired so many brands over the years that it’s becoming difficult to stay focused on the important ones.
InvestorPlace contributor James Brumley named PG one of eight dividend stocks to buy for income growth. In his piece, he applauds Procter & Gamble’s decision to sell its beauty products division to Coty (COTY):
“PG is finally getting serious about doing better with fewer things than trying to do well with too many things. The exit of a big chunk of its beauty business is one example of this streamlining that should boost efficiency, and therefore boost profitability, and therefore facilitate more dividend growth.”
Not that paying dividends would’ve been a problem anyways. PG has raised its dividend in each of the last 58 years, making it one of the best dividend stocks in the stock market today.
Top Dow Dividend Stocks #8: Intel (INTC)
Dividend Yield: 3.4%
YTD Performance: -22%
In a year characterized by mergers and acquisitions, the top chipmaker in the world, Intel (INTC), decided it wanted to get in on the action itself, and on June 1 announced the acquisition of another semiconductor company, Altera (ALTR). The proposed deal set Intel back $16.7 billion, or the equivalent of $54 per share of Altera stock.
The deal should do a couple of things: According to a joint press release from the two companies announcing the merger, the combination of INTC and ALTR “enables new classes of products in high-growth data center and Internet of Things market segments.”
After the deal closes — presumably sometime between December 2015 and March 2016 — the Altera acquisition should be accretive to earnings within a year. Not too shabby.
You know what else isn’t too shabby? Intel’s giant dividend payments, which have been hiked once a year now for the past five years.
Top Dow Dividend Stocks #7: DuPont (DD)
Dividend Yield: 3.5%
YTD Performance: -23%
Agricultural and chemical giant DuPont (DD) has already had a tumultuous year thus far, as it waged a battle against activist investor Nelson Peltz, who proposed cutting up to $4 billion in costs by splitting the company in two.
The standoff finally came to an end at the annual shareholder meeting in May, re-electing DuPont’s incumbent directors and denying Peltz the board seat he coveted so dearly. In the short-term, that decision might look like a mistake; DD stock has fallen 24% since the May 13 vote.
But in the long-run, the vote may be exactly what the doctor ordered. After all, activist investors aren’t always the knights in shining armor they claim themselves to be. They’ve even drawn the ire of Democratic Presidential hopeful Hillary Clinton, who recently declared that “action is needed to address the influence of increasingly assertive shareholders determined to extract maximum profit in the minimum amount of time — even at the expense of future growth.”
With DuPont earnings set for before the bell tomorrow morning, we’ll see soon enough whether DD stock can get along on its own, or whether the company needs a little shakeup.
Top Dow Dividend Stocks #6: McDonald’s (MCD)
Dividend Yield: 3.5%
YTD Performance: +3%
Are the worst times behind McDonald’s (MCD) shareholders? That remains to be seen, but there are at least a few things going for the Golden Arches.
From an investor’s point of view, you hate to see the incessant same-store sales declines we’ve been seeing for the last several years now. But you’re lovin’ the fact that MCD stock beat on both revenue and EPS last week when it announced second-quarter results.
It’s also important to note that one of the company’s biggest headwinds is literally entirely outside of anyone’s control. I’m talking about the strong dollar, which hurts Mickey D’s due to its heavy exposure to overseas markets with weaker currencies.
Either way, McDonald’s remains one of the best Dow dividend stocks in the land, with a yield 120 basis points higher than the 10-year T-bill and a 38-year record of increasing its payout.
Plus, the long-awaited all-day breakfast menu might be hitting all U.S. McDonald’s locations as soon as October, according to recent reports.
If McDonald’s can pull that off, I suspect its same-store sales woes will magically disappear.
Top Dow Dividend Stocks #5: General Electric (GE)
Dividend Yield: 3.6%
YTD Performance: +2%
2015 is a year of rapid transition for General Electric (GE) stock. Don’t worry — that’s definitely a good thing. Back in April, GE announced that it was going back to the basics (one of this list’s themes), and selling of its financial arm, GE Capital.
The division that nearly brought GE stock to its knees in the depths of the financial crisis isn’t welcome at the industrial giant anymore, and shareholders were elated when the company announced it was getting out of the banking biz, sending the stock on a 2-day 14% rally.
I’d be ecstatic too if I just heard I was entitled to a non-death-related windfall. InvestorPlace Feature Writer Dan Burrows had the mind-boggling numbers earlier this year:
“Shareholders are going to get a significant amount of cash from the sales and spinoffs. GE said it could get a dividend of $35 billion from GE Capital. It also pledged to buy back $50 billion in stock.”
Considering shareholders are already enjoying a 3.6% dividend yield, how could GE not be one of the best Dow dividend stocks?
Top Dow Dividend Stocks #4: Exxon Mobil (XOM)
Dividend Yield: 3.7%
YTD Performance: -14%
Naturally, shares of integrated oil and gas leader Exxon Mobil (XOM) have seen better days. Crude oil prices refuse to rebound, and WTI now trades for less than $48 per barrel. That’s a huge problem for wildcatters and overly oil-reliant countries like Venezuela … but Exxon?
It’ll be just fine. Because Exxon is diversified, and involved in both upstream and downstream operations.
When oil prices fall, XOM’s upstream (drilling) operations take a hit, but its downstream (refining and marketing) enjoy higher margins. In other words, Exxon isn’t just one of the top dividend stocks in the Dow Jones Industrial Average — it’s also an energy hedge fund of sorts.
We’ll see how XOM comes out on Friday morning when it reports second-quarter results. Wall Street is looking for EPS of $1.09 on revenue of $72.48 billion.
Top Dow Dividend Stocks #3: Caterpillar (CAT)
Dividend Yield: 4.1%
YTD Performance: -18%
Dividends are pretty much the only thing working in Caterpillar‘s (CAT) favor recently. About half of the stock’s decline this year has come in the last five days of trading, as the global machinery giant announced some really tough second-quarter results.
While EPS was in line at an adjusted $1.27, revenue of $12.32 billion fell well short of the $12.62 billion that analysts expected.
Unfortunately, management doesn’t really see things getting much better as the year goes on, either; CAT cut its full-year revenue forecast by nearly $1 billion to $49 billion. Lower commodities prices are taking a tough toll on CAT stock, which hasn’t traded in the mid-$70 range since its lowest points in 2011.
But Caterpillar wouldn’t be one of the best blue-chip dividend stocks out there if its dividend wasn’t somewhat stable. At a payout ratio of 62%, the company can easily afford to keep cutting those quarterly checks to shareholders.
Top Dow Dividend Stocks #2: Chevron (CVX)
Dividend Yield: 4.7%
YTD Performance: -20%
Like its largest direct competitor and fellow Dow Jones member Exxon, Chevron (CVX) stock has seen better days, with shares down sharply in 2015.
Unlike Exxon, CVX pays a dividend approaching 5% annually.
That’s a good reason — but by no means the only reason — to like Chevron at current levels. InvestorPlace contributor Aaron Levitt recently highlighted Chevron’s dirt-cheap valuations as well. CVX stock and its single-digit price-to-earnings ratio trades at a steep discount to the S&P 500 (21 P/E) and an 18% discount to Exxon stock and its earnings multiple of 12.
BP (BP), for its part, has a P/E about four times Chevron’s.
But as with any stock, there are risks investors should be aware of. While Chevron has increased its dividend payout for 29 straight years, it may have to start borrowing money or selling off assets if oil prices remain low for much longer. It’s even possible that CVX could break its 29-year streak and keep its dividend the same.
Investors will get a better feel for Chevron’s financial situation and outlook after its second-quarter earnings announcement Friday, July 31.
Top Dow Dividend Stocks #1: Verizon (VZ)
Dividend Yield: 4.8%
YTD Performance: -2%
Yet again, Verizon (VZ) is one of the best Dow dividend stocks, and how could it not be with that juicy 4.8% yield behind it?
For the first time in months, though, Chevron (now boasting a 4.7% dividend yield) is within striking distance of Verizon’s throne, so don’t be surprised if VZ slips to No. 2 in September or October.
Unlike many of its Dow peers, Verizon announced its second-quarter results last week, and unfortunately they weren’t really anything to write home about. Although EPS edged analyst expectations, the wireless carrier missed on revenue and cut its full-year revenue guidance to boot.
It doesn’t appear the subpar revenue is a major problem for Verizon, rather just the natural result of an industry price war initiated by underdogs like T-Mobile (TMUS). Importantly, customers are sticking with Verizon; just 0.9% of wireless postpaid customers “defected” from the company, a three-year low and nine basis points below expectations.
Trading at just 11.5 times forward earnings, VZ certainly deserves to be recognized as one of the best dividend stocks in the Dow.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
