September is supposed to be the month that investors return to the stock market with open arms, arms tired from fly-fishing and waiter-summoning.
Alas, this September was nothing more than a continuation of August’s steep selloff, and the S&P 500 lost another 4% after getting hammered for 6% the month before.
The sudden crash of the Chinese stock market is mostly to blame for most of the recent volatility, which is leaving many a portfolio ravaged in its wake. Investors seeking asylum from risk might ponder U.S. Treasuries, though unfortunately the 10-year T-note yields a petty 2.1% right now.
A far better option for the patient long-term investor is to acknowledge the silver lining in the recent selloff, which has made some of the best dividend stocks in the world cheaper — and better-yielding.
Without further ado, here are the 10 best Dow Jones Industrial Average dividend stocks for October, listed from lowest yield to highest yield. Every one of them pays much more than 2.1%.
Best Dow Dividend Stocks for October: #10, McDonald’s (MCD)
Market Cap: $91 billion
Dividend Yield: 3.5%
When it comes to Dow dividend stocks, McDonald’s (MCD) has never been at the top of the heap. Perhaps it never will be.
But with a painful multiyear streak of same-store sales declines, what was clear was that Mickey D’s needed to change — from the top down. Earlier this year, former CEO Don Thompson resigned under investor pressure, paving the way for current CEO Steve Easterbrook to work his own magic.
Since then, MCD stock has beaten the S&P 500 by 14 percentage points, with much of its outperformance coming since the spike of volatility in August.
While paying a hefty dividend may insulate your stock price from wild swings, the million-dollar question is whether Easterbrook can re-energize a tired old brand and grow same-store sales once again.
For now, the jury’s out!
Best Dow Dividend Stocks for October: #9, Pfizer (PFE)
Market Cap: $199 billion
Dividend Yield: 3.6%
Despite getting whacked this way and that by Wall Street (who hasn’t been recently?), the fact that the feds recently approved the acquisition of Hospira should have long-term benefits for shareholders. Hospira makes biosimilars, or cheaper, generic versions of biological drugs.
But is Pfizer truly one of the best dividend stocks to buy today?
That depends. The company only has a six-year record of dividend payout growth, after slashing it in 2009 to help finance its $68 billion purchase of rival drugmaker Wyeth.
Best Dow Dividend Stocks for October: #8, IBM (IBM)
Market Cap: $142 billion
Dividend Yield: 3.6%
Warren Buffett started snapping up shares of IBM (IBM) back in 2011, famously making it his first major technology investment in the process. Years later, the Oracle’s investment has uncharacteristically not reaped massive rewards … yet.
Although Big Blue may seem like a stodgy tech giant of yesteryear, it’s very much into investing in the areas of the future like the cloud, data analytics and artificial intelligence. When IBM’s Watson out-dueled two Jeopardy! legends, winning in commanding fashion on national TV, it was reminiscent of the 1997 Deep Blue-Kasparov chess match.
IBM hopes to continue shocking the world with its advances in machine learning, which it hopes will one day have widespread applications in fields like medicine, business and education.
Until then, IBM is one of the cheapest dividend stocks in the stock market today, trading at less than 9 times forward earnings and yielding an impressive 3.6%.
Best Dow Dividend Stocks for October: #7, Procter & Gamble (PG)
Market Cap: $197 billion
Dividend Yield: 3.7%
Procter & Gamble (PG), which originated nearly two centuries ago in 1837, is one of the oldest and most reliable American companies in history.
For long-term investors, the great thing about PG stock is that it’s never going away. No upstart’s gonna come in and “disrupt” Tide, Oral-B, Pantene, Duracell, Pampers or Mr. Clean, nor will demand for these products ever suddenly disappear.
And when it comes to the best dividend stocks, PG certainly deserves recognition. Not only is the 3.7% annual payout far better than the 2.1% you can get from the 10-year, but the Cincinnati consumer goods giant has been increasing its payout for 59 consecutive years.
Dividend stocks don’t get much more stable than Procter & Gamble.
Best Dow Dividend Stocks for October: #6, Merck (MRK)
Market Cap: $140 billion
Dividend Yield: 3.7%
It’s tough to be as consistent as Procter & Gamble. Pharma giant Merck (MRK), for example, has only been raising its dividend for a measly four consecutive years. Still, 3.7% is substantial, and at a payout ratio of just 51%, it’s more than sustainable.
And while MRK is down 14% in 2015, there’s ample reason to believe the stock is simply undervalued. InvestorPlace Feature Writer James Brumley recently took up the issue in his column, 10 Cheap Pharmaceutical Stocks to Buy:
“As of the last calculations, MRK is trading at a forward-looking P/E of 13.3, which is second only to AbbVie (ABBV) among the major pharmaceutical stocks as far as 2016 P/Es go.
And just for the record, Merck is in the habit of topping estimates, meaning that projected valuation still might not be optimistic enough.”
In short, not only is Merck one of the top dividend stocks on Wall Street, but it’s also trading on the cheap right now.
Best Dow Dividend Stocks for October: #5, General Electric (GE)
Market Cap: $253 billion
Dividend Yield: 3.8%
General Electric (GE) has had a very clear theme running in 2015: It essentially gutted GE Capital, its financial arm, back in April, selling its diverse real estate holdings to buyers like Blackstone Group LP (BX) and Wells Fargo (WFC).
The end result? $26.5 billion in GE’s pockets, and the ability to buy back as much as $50 billion of its own shares.
With a renewed focus on its industrial operations, GE can finally spend time on doing a few things well — rather than a ton of things poorly.
GE stock, despite losing about 3% so far in 2015, is still outpacing the S&P by about 5 percentage points. However, the constant gripe with naming GE one of the top Dow dividend stocks is the fact that the company slashed its dividend back in 2009 for liquidity reasons.
It’s a rational concern for an income investor to have, but after five straight years of dividend growth since then, my InvestorPlace colleague Charles Sizemore feels strongly that the dividend is back to being safe.
Best Dow Dividend Stocks for October: #4, Exxon Mobil (XOM)
Market Cap: $306 billion
Dividend Yield: 4%
OK, let’s just acknowledge the elephant in the room.
Commodities, across the board, are getting hammered this year. And the companies that traffic in those commodities are getting slammed.
Shares of miner and commodities trader Glencore (GLCNF), for instance, have taken a 77% beating this year as high indebtedness and a ruthless market have some wondering whether the company will go under entirely.
But Exxon Mobil (XOM) isn’t Glencore.
Energy has been pretty bad itself, with the broader Energy SPDR (XLE) down some 35% in the past 52 weeks. But XOM is only down 23% in that time — a testament to the company’s sheer size, scale and diversified operations.
Last quarter, Exxon earned about half what it did in the year-ago period, so it’s not the best of times by any means. But still, a quarterly bottom line of $4.2 billion ain’t too shabby.
Additionally, Exxon’s dividend is more than safe, and the payout’s been on the rise for 33 consecutive years.
Best Dow Dividend Stocks for October: #3, Caterpillar (CAT)
Market Cap: $39 billion
Dividend Yield: 4.8%
I try to call ’em like I see ’em, folks, and Caterpillar (CAT) stock, frankly, scares the heck out of me.
Yes, it has a nearly 5% dividend and a sustainable 66% payout ratio. But it also has massive exposure to the cyclical nature of commodities, which happen to be stuck in the most painful part of their cycle.
Much of Caterpillar’s woes can be traced back directly to China, where a decelerating economy is hitting demand for construction machinery, and lower demand for raw materials means exporters are buying less mining machinery. Couple that with lower cost for agricultural commodities, and farmers aren’t springing for CAT’s agricultural machinery, either.
High dividends can be alluring, but just as often the reason behind the beefed-up yield should spook you away.
Best Dow Dividend Stocks for October: #2, Verizon (VZ)
Market Cap: $179 billion
Dividend Yield: 5.2%
Verizon (VZ), the largest telecom company in the U.S., is once again an elite Dow dividend stock this month, boasting a 5.2% annual dividend. It’s been raising its dividend payout for nine consecutive years, including a 2.7% boost it announced in early September.
At a payout ratio of just 57%, it should be able to remain one of the best blue-chip dividend stocks for years to come.
Still, don’t get over-enamored by Verizon’s massive payout. I happen to think the stock is a compelling long-term investment right now — if only because it’s the leader of the pack in an oligopolistic industry — but mounting competition from AT& T (T), Sprint (S), and T-Mobile (TMUS) will still give Verizon headaches.
Best Dow Dividend Stocks for October #1: Chevron (CVX)
Market Cap: $146 billion
Dividend Yield: 5.6%
Alas, the highest-paying of all Dow dividend stocks is integrated oil and gas major Chevron (CVX).
Although CVX stock has been hit hard during the oil price slump (the stock’s down 33% this year), that has had the benefit of lifting Chevron’s dividend to historically high levels.
Chevron’s been boosting its payout since 1986, which incidentally was also the same year Geraldo blew open Al Capone’s vault on live TV to find … nothing.
Some investors worry that Chevron’s sky-high dividend yield will also be blown to smithereens if oil prices remain in the gutter, and considering the company’s payout ratio is 124%, I understand the concerns.
But Chevron is likely to continue borrowing to finance the payout, and I think CVX is strong enough to keep the dividend propped up through debt until oil prices rebound.
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 email@example.com.