The Dow Jones Industrial Average is one of Wall Street’s gauges for market health. It is dominated by 30 gargantuan companies representing the market’s most profitable, diverse, multinational businesses. So, it makes sense that investors want to look for the cheapest Dow stocks to buy.
However, not all companies that belong to the index are the same, with some seemingly underperforming and going onto the value investors’ radar. My favorite metric for quickly spotting undervalued stocks is the earnings yield.
Contrary to the usual P/E ratio, earnings yield is the inverse of the metric and tells you how much profit you are getting per share. The higher the yield, the more an investor could expect to earn vis-a-vis the share price.
Screening for high earnings yields presents opportunities to own stocks at attractive prices. These three Dow stocks have the best earnings yield as of today.
Verizon Communications (VZ)
Verizon Communications (NASDAQ:VZ) is the second-largest wireless carrier in the United States. Its operations are reported under two main segments:
- Verizon Consumer Group: covers its wireline and wireless services under the Verizon brand.
- Verizon Business Group: deals with its enterprise services.
With a high dividend and low trading price, Verizon is one of the go-to companies for income investors. VZ stock has declined for the past few years, but high dividends and the promise of decent returns make it an attractive addition to any patient investor’s portfolio.
With the up-and-coming Spectrum Pipeline Act of 2024, Verizon has the potential for even higher growth as the demand for bandwidth and better connections puts the company at the forefront of the next mobile traffic boom.
In terms of financials, though, Verizon has seen better days. Consolidated operating revenue for FY’23 decreased by 2.1%, and EPS dropped to $2.75 from $5.06. Still, the company grew its wireless service revenue, fixed wireless net additions, and total wireless postpaid net additions. Demand for fixed wireless and premium-price plans drove the growth of wireless service revenue, which the company could capitalize on.
Free cash flow also improved by an impressive 30%, which is why I’m mildly optimistic on the 2024 outlook. The company expects a 2-3.5% total wireless service revenue bump for the full year. Verizon’s dividends, dominating market presence, and high earnings yield make VZ an excellent Dow Jones stock to buy.
Cisco Systems (CSCO)
Anyone who uses the internet in a professional capacity will most likely know about Cisco Systems (NASDAQ:CSCO).
Cisco is mostly known for its network equipment, like routers and end-to-end security solutions. The company is one of the most trusted brands in the enterprise and office space, and its networking, security, and collaboration solutions continue to provide companies with efficient ways to do business.
The company recently announced the release of new collaboration devices aimed at hybrid work, like the Cisco Board Pro G2 and Cisco Desk Phone 9800 Series. These devices encourage collaborative teamwork and workstation customization, ensuring that its products keep up with the changes in the office environment.
In terms of revenue, Cisco reported a slight slowdown in Q2’24 for some metrics. Revenue slid 6%, and GAAP EPS was down 3% YOY. On the bright side, total annualized recurring revenue, or ARR, increased by 6%.
The Security, Collaboration, and Observability segments also grew this quarter, although Networking, Cisco’s primary revenue source, saw a 12% drop.
The company also increased its dividend by 3%, demonstrating a commitment to shareholder value. CFO Scott Herren states, “We are making good progress in our business model shift to more recurring revenue while remaining focused on financial discipline, operating leverage, and shareholder returns, as evidenced by our increased dividend.”
Cisco’s strong focus on steady growth, operating efficiency and consistent income make it a strong long-term value investment pick.
Chevron Corporation (CVX)
Chevron Corporation (NASDAQ:CVX) is one of the top names for the world’s transition into a sustainable, low-carbon future. The company’s operations range from oil and natural gas exploration and development to refinement and specialty products.
While its price performance is heavily anchored on the price of commodities, the shift in the global gas market poses a strong buying opportunity for Chevron.
Chevron’s 2023 full-year report is mixed, with a notable revenue and net income decline. However, the company still returned $26.3 billion to shareholders in FY’23. It also increased its quarterly dividend by 8% to $1.63/share, underlining its long-term commitment to investors.
In addition, Chevron produced a record output of 3.1 million barrels of oil equivalent per day, which was led by 14 % growth in products from the United States. While commodity prices have been hit hard in recent years, the company’s diversification in other areas of its businesses makes it one of the best long-term players.
And if this wasn’t enough, don’t forget that Chevron’s natural gas production is an effective backup to a sustainable economy.
In the end, Chevron is in an excellent position to supply the market’s needs, which makes it an excellent consideration for one of the cheapest Dow Jones stocks to buy.
On the date of publication, Rick Orford did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
