Wall Street began August on a sleepy note, as the major market indices more or less traded sideways for the first half of the month.
That didn’t last long.
The week after China unexpectedly devalued its currency, the yuan, Chinese equities began to plunge. It didn’t take long for U.S. stocks to follow suit; the S&P 500 promptly entered “correction” territory — a market-wide slump of 10% or more.
While it’s natural to bemoan a stock market selloff, the pullback gives bargain hunters a chance to buy into high-quality stocks on the cheap, so it’s not all bad! Plus, income investors can now snatch up quality companies at bargain prices and extremely attractive dividend yields.
One thing’s for certain: You can’t get much income from Treasuries … not with the 10-year yield sitting at a lousy 2%.
Here are the Dow Jones Industrial Average’s 10 best dividend stocks for September, listed from lowest yield to highest yield. And they can certainly get you better than 2%.
Best Dow Dividend Stocks for September #10: Pfizer (PFE)
Market Cap: $200 billion
Dividend Yield: 3.4%
Pharmaceutical behemoth Pfizer (PFE) has suffered through a tough August, with its stock down more than 7%.
The good news for investors? That means it’s now one of the 10 best dividend stocks in the Dow.
Another positive for Pfizer investors: August saw the company’s blockbuster acquisition of Hospira, the drugmaker and medical device-maker, meet with regulatory approval in the U.S., Brazil and the European Union. The $15.2 billion deal gives PFE exposure to biosimilars, a more affordable type of drug based off biological products.
With the “patent cliff” plaguing Pfizer and other major pharma companies, investing in generics and biosimilars is increasingly a necessary move for those looking to increase market share and stay competitive.
Best Dow Dividend Stocks for September #9: IBM (IBM)
Market Cap: $144 billion
Dividend Yield: 3.5%
Shares of IBM (IBM) are off 23% in the past year amid concerns about a decline in their core software and hardware businesses. Currency headwinds aren’t helping either, as the strength of the dollar dilutes overseas results.
Even though IBM missed on revenues in its most recent quarter, growth in its “strategic imperatives” — analytics, cloud, mobile, social and security — is coming along nicely. Cloud computing revenue jumped 50% last quarter, a jump you’re never going to see in hardware sales.
Going forward, IBM’s Watson artificial intelligence and data analytics should allow for the company to be extremely flexible. Its applications are far-reaching, transforming the way we think about healthcare and play Jeopardy!
More importantly, IBM is a cash cow, pure and simple, and it has been growing its dividend for 20 consecutive years.
Best Dow Dividend Stocks for September #8: Intel (INTC)
Market Cap: $130 billion
Dividend Yield: 3.5%
Shares of chipmaker Intel (INTC) are also down big, off 24% for the year. For income investors, that’s a bittersweet thing: Worries about its performance are at least somewhat offset by a dividend yield that continues to rise, rise, rise.
While the secular decline of the PC industry isn’t good news for Intel, those concerns are well-known and seem to be overly baked into the stock price. INTC stock currently goes for less than 12 times earnings, almost a 50% discount to the S&P 500, which goes for 21 times earnings.
And when you back out Intel’s cash hoard — the tech giant has $13.9 billion in its coffers — the stock trades at a multiple of just 9.6.
Oh, add in the fact that Intel and Micron (MU) just announced a breakthrough in energy chip technology called 3D Xpoint — it’s 1,000 times faster than current NAND chips — and perhaps Intel’s business isn’t as doomed as we thought.
Best Dow Dividend Stocks for September #7: McDonald’s (MCD)
Market Cap: $89 billion
Dividend Yield: 3.5%
McDonald’s (MCD) is a veritable American institution; there’s little doubt its Golden Arches will still be spotted with glee by children (and adults alike) 50 years from now.
Unfortunately, longevity alone doesn’t make a great stock. MCD shareholders have learned that lesson the hard way in recent years, as a troubling decline in same-store sales, franchisee dissatisfaction and supply chain issues caused shares to underperform the S&P 500 pretty dramatically.
Even factoring in McDonald’s sizable dividend payments, the trailing five-year return for MCD stock is 48%; meanwhile, the S&P 500 gained 79%, including dividends.
With McDonald’s planning to close more stores than it opens in 2015 for the first time in 40-plus years, Mickey D’s 3.5% dividend is one of the few redeeming factors for this stock.
Best Dow Dividend Stocks for September #6: Procter & Gamble (PG)
Market Cap: $188 billion
Dividend Yield: 3.7%
Here’s a riddle: What company has been growing its dividend for 59 straight years, only to be rewarded with a 23% meltdown in its stock price this year?
If you guessed Procter & Gamble (PG) … well, you probably just got the hint from the header.
In the wake of August’s stock market selloff, we could very well be in the midst of a return to high-quality stocks as investors seek refuge in tried-and-true names. That’s a net positive for all the blue-chip dividend stocks on this list, but Procter & Gamble has a dividend payout history that even most of its Dow peers can’t match.
That said, PG stock is very much in turnaround mode, and its efforts to shed low-margin businesses and cut costs can only go so far. It’s something investors should be aware of before getting lured in on the virtue of its 3.7% dividend alone.
Best Dow Dividend Stocks for September #5: General Electric (GE)
Market Cap: $241 billion
Dividend Yield: 3.7%
General Electric (GE) is also trimming its fat, essentially selling off the entirety of its financial arm, GE Capital, to focus on its industrial roots.
As far as GE’s dividend is concerned, the company only has a five-year record of increasing its payout. Certainly not one of the best dividend stocks by that metric, but remember, GE was forced to slash its dividend during the financial crisis because of GE Capital — the financial business it just got rid of.
The GE Capital sale alone could generate a dividend of $35 billion that would go into GE’s pocket — money that could then be distributed among shareholders, and with the company’s commitment to a $50 billion stock buyback plan, General Electric is starting to look like a solid investment once again.
Best Dow Dividend Stocks for September #4: Exxon Mobil (XOM)
Market Cap: $300 billion
Dividend Yield: 3.9%
Although this sentiment goes for most pretty much all Dow dividend stocks, it’s especially true with Exxon Mobil (XOM): This stock is a long-term play.
We’re all familiar with the rout in oil prices, and that’s obviously been devastating for Exxon’s cash flow. But with analysts still expecting XOM to haul in a mind-numbing $317 billion in revenue next year, investors can safely assume this company isn’t going anywhere.
Plus, with $4.4 billion in cash on hand and an ability to effortlessly raise cash through the bond market if it so desired, Exxon is in a prime position to scoop up smaller, beleaguered competitors that simply can’t sustain the $40-per-barrel level for much longer.
As for Exxon’s dividend, both XOM and rival Chevron (CVX) boast hugely attractive yields you rarely see the companies pay … which is why they’re the perfect candidates for dividend reinvestment plans, or DRIPs.
Best Dow Dividend Stocks for September #3: Caterpillar (CAT)
Market Cap: $44 billion
Dividend Yield: 4.1%
Before plowing into Caterpillar (CAT) stock for its dividend alone, consider the risks. (This should be true for any stock, of course, but Caterpillar faces some pretty company-specific headwinds.)
China has obviously been the single-largest market disruptor in recent months, and concerns over Asia’s economy tend to have an oustsized negative effect on Caterpillar stock. China is a big end-market for Caterpillar, whose construction and mining equipment business has seen better days, to say the least.
Not only are commodity prices in the gutter, but investors outside of China have no real way of knowing how much the world’s second-largest economy is relying on its government for growth — or if the growth numbers its government put out are even accurate.
This all has hampered Caterpillar for some time, including an 18% decline in 2015.
Best Dow Dividend Stocks for September #2: Verizon (VZ)
Market Cap: $182 billion
Dividend Yield: 4.8%
Verizon (VZ), taking a cue from competitors like T-Mobile (TMUS), is overhauling a major part of its business model and doing away with the contract. It’s a savvy move to stay in line with competitors’ practices in a cutthroat industry where growth essentially depends on stealing your rival’s subscribers.
But the savviest aspect of the new policy is that Verizon is doing away with phone subsidies, forcing consumers to (gasp!) actually pay for their new phones. You can do it all at once or in an installment plan, but the days of cheap iPhones are over.
As the largest player in a rapidly consolidating industry, the long-term economics for Verizon have looked attractive for some time now. And with Verizon bouncing back recently to nearly breakeven for the year and the Fed seemingly unlikely to raise rates in September, VZ stock has some short-term catalysts going for it, too.
Best Dow Dividend Stocks for September #1: Chevron (CVX)
Market Cap: $135 billion
Dividend Yield: 5.6%
Chevron’s reign as the top blue-chip dividend stock has gotten a major boost from lagging oil prices, which fell below $40 a barrel in August for the first time since 2009. Chevron is one of the few diversified majors, meaning it has extensive upstream and downstream operations.
Typically, drilling and production operations — the upstream side — suffers as oil prices fall. There’s no doubt CVX is suffering from this today. However, its refining and distribution operations — the “downstream” — tend to reap much greater profits in a deflationary commodities market like today’s.
Still, Chevron’s high dividend yield reflects a certain degree of risk, as some investors fear the company will slash its dividend due to a cash squeeze. Heavy investing in capital expenditures means that if oil prices stay this low for much longer, the company will have to, according to InvestorPlace‘s own Aaron Levitt, “load up on debt or start selling assets — neither of which is necessarily good.”
As of this writing, John Divine was long shares of MU stock. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.