All of the stocks in the Dow Jones Industrial Average pay dividends, but most of them don’t have very high dividend yields. In fact, the highest paying dividend stocks in the Dow are easy to find: only 10 of the 30 stocks in the Dow yield 3% or more. But because of the Dow’s selectivity, it can be a great place to turn for yield if you’re seeking out Dividend Aristocrats or high dividend blue chip stocks.
Highest Paying Dividend Stocks In The Dow
- Verizon (VZ)
- Chevron (CVX)
- Pfizer (PFE)
- Exxon Mobil (XOM)
- The Coca-Cola Company (KO)
- Cisco (CSCO)
- Caterpillar (CAT)
- General Electric (GE)
- The Boeing Company (BA)
- International Business Machines (IBM)
Like the index itself, the highest yielding stocks in the Dow are well-established, high-quality American companies. Other than Cisco, they’d all be familiar names to your grandfather (although he’d know Verizon as Bell Atlantic).
However, as we saw when we looked at the highest paying dividend stocks in the S&P 500, many of these stocks’ best days are behind them. Some have very high dividend payout ratios that show they’re returning most of their cash to shareholders at this point—rather than reinvesting in their business.
The world of dividend-paying stocks is ever expanding.
To help sort through it all, our experts have some tips on where to find them, what to look for, and a list of some of their favorite dividend stocks that are hot this month.
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Below, I’ll take a closer look at each of the highest paying dividend stocks in the Dow.
- Verizon (VZ) – Dividend Yield 4.6%
Verizon is the largest U.S. wireless carrier, but faces stiff competition from Sprint (S) and T-Mobile (TMUS), and to a lesser extent AT&T (T). Analysts have taken to calling the carriers’ tit-for-tat promotions “the cell phone wars.” The four companies’ constant efforts to out-compete one another—with simpler pricing, less restrictive plans and more data—have taken a toll on leader Verizon’s revenues and earnings. As a result, the stock has been floundering since 2013.
The latest disappointments have dragged VZ low enough, and pushed the stock’s yield high enough, that this could be a good buying opportunity for bargain-hunting income investors. Verizon now has the highest dividend yield in the Dow. And EPS are expected to rise 1.4% this year and 3.2% next year, thanks to disciplined cost control and growth in new businesses.
Those new ventures include growing Internet of Things revenues (up 21% in the fourth quarter) and an uneven but determined foray into digital content. Verizon’s ongoing acquisition of Yahoo is part of the latter strategy, which also included the acquisition of AOL and the launch of the streaming video service Go90. Combined with AOL’s targeting technology, Yahoo’s ad network is expected to give Verizon a significant competitive edge in monetizing mobile content.
- Chevron (CVX) – Dividend Yield 3.8%
The second-highest dividend yield in the Dow belongs to Chevron. Chevron is one of the world’s largest oil companies, with energy exploration, production, refining, trading and transport operations that circle the globe. Founded in 1879, Chevron has paid dividends since 1970.
Like the rest of the energy sector, Chevron’s stock tanked in 2014, finally bottoming 41% lower in late 2015. Since then, the stock has rebounded about 50%, before hitting resistance at 120 in January.
Chevron kept making dividend payments during the crisis, but didn’t increase its dividend for over two years. The stock’s dividend payout ratio remains over 100%.
But growth is returning: Chevron’s revenues are expected to balloon 28% this year, before returning to a more typical annual growth rate around 4% next year. EPS will more than double this year (up from a very low baseline) before returning to more moderate but still strong growth of 32% next year.
- Pfizer (PFE) – Dividend Yield 3.7%
Originally founded as a chemical manufacturer by cousins Charles Pfizer and Charles F. Erhart in 1849, Pfizer is now one of the world’s largest pharmaceutical companies. Pfizer’s blockbuster drugs include Advil, Lipitor and Viagra, as well as some of the most -prescribed treatments for bacterial infections, pain, inflammation, depression, anxiety and other common conditions.
Revenues are expected to grow 1% this year and 2% next year, while earnings are expected to increase by 7% and 9%.
Pfizer was a Dividend Aristocrat until the company was forced to cut its dividend during the financial crisis. While the company has increased the dividend every year since then, its dividend payout ratio is currently over 100%, a red flag.
However, the stock is at a fairly low-risk entry point. After trading in a range between 28 and 32 for most of 2014, PFE broke out in early 2015 and built a higher base between 32 and 36. But a couple of drug pricing scandals knocked the legs out from under the stock, and it was back at 30 early last year. After another run to 36 failed in late 2016, PFE is now trading right in the middle of its range.
- Exxon Mobil (XOM) – Dividend Yield 3.6%
The second oil & gas company on our list, Exxon is larger than Chevron, but has a slightly lower dividend yield. Like Chevron, Exxon ran into tough times in 2014, falling 30% from peak to trough. Exxon chose to maintain annual dividend increases, so it’s still on the Dividend Aristocrats list, although its current dividend payout ratio is over 100%.
That ratio should begin to improve this year, since EPS are expected to be 73% higher than in 2016. Next year will see a return to more normal growth rates around 20%.
XOM has been chopping around between 80 and 95 since mid-2016.
- The Coca-Cola Company (KO) – Dividend Yield 3.5%
Coca-Cola is a blue chip stock, a Dividend Aristocrat and a household name. But revenues have been declining since 2013, as consumers become more nutritionally savvy. Sales of bottled water—Coke owns the Dasani brand—are strong, but are still a small piece of the pie compared to soda sales.
The good news for income investors is that four years of falling sales and three years of stock price stagnation have pushed KO’s dividend yield to a high of 3.5%, versus the stock’s five-year average of 3.0%. Of course, KO’s dividend payout ratio has also increased, and is currently worrisomely high at 94%. Coca-Cola seems unlikely to be about to let its Dividend Aristocrat status lapse, but if they can’t get earnings growing again, they’re going to have to start finding the money for those dividends somewhere else soon.
- Cisco Systems (CSCO) – Dividend Yield 3.4%
Networking equipment leader Cisco was founded in 1984 and added to the Dow in 2009. For a while in 2000, Cisco was the most valuable company in the world, with a market cap of over $500 billion. Today Cisco is a little smaller, and has gone through multiple restructurings in an attempt to keep up with the rise of cloud computing. EPS grow in some years and shrink in others. Revenues increased from 2009 to 2013, but have been wobbly since. Over the past 10 years, the stock has risen 36%—mostly in the past year.
Dividend growth has been more reliable. Cisco started paying dividends in 2011, and has increased the dividend every year since. The company’s dividend payout ratio has largely stabilized between 40% and 50%.
And earnings growth expectations are improving. Revenues are expected to fall 2% this year, but a return to growth is expected in 2018. And EPS, while about flat this year, are expected to grow 5% next year. The stock’s recovery is anything but certain, but it has potential for investors with strong stomachs.
- Caterpillar (CAT) – Dividend Yield 3.2%
Caterpillar makes heavy machinery and vehicles used in the construction, mining, energy and transportation industries. The company has seen revenues, earnings and its stock price decline over the past five years, as a broad range of energy and commodity prices sank.
But oil prices have stabilized over the past six months, and many commodity prices are starting to rebound, giving Caterpillar’s customers more cash to invest. Caterpillar is also expected to be a major beneficiary of increased government infrastructure spending in the U.S.
The rebound has started to trickle down to earnings; the company beat earnings estimates in each of the last three quarters. Revenue and EPS are still expected to be slightly lower this year than in 2016, but growth is expected to return in 2018. However, estimates have recently been revised downward, after Federal agents raided the company’s headquarters as part of an investigation into Caterpillar’s offshore tax practices.
Caterpillar’s dividend is also looking a little shaky today. The company has paid dividends since 1925, and has increased the dividend annually for seven years running. But Caterpillar’s dividend payout ratio based on free cash flow rose to 72% last year.
- General Electric (GE) – Dividend Yield 3.2%
GE is the oldest continuous member of the Dow; its current tenure dates to 1907 (although it was also a member from 1896 to 1898 and 1899 to 1901). The stock was a Dividend Aristocrat until 2009 but was forced to cut its dividend during the financial crisis; the stock declined over 70% as well.
GE has since reduced its financial exposure by spinning off most of GE Capital, but the remaining businesses still face challenges. GE’s transportation and oil & gas equipment businesses both saw demand shrivel up as oil prices fell in recent years. GE’s renewable energy business is growing, but isn’t yet large enough to offset declines on the conventional energy side. The company also sold its Appliances business in 2016, and announced plans to sell its Industrial Solutions and Water divisions in the near future. The attempts to streamline and simplify are expected to contribute to 2% revenue growth in 2017, followed by 7% growth in 2018. EPS are expected to grow 9% this year and 17% next year. However, the recovery is still very much a work in progress; GE’s dividend payout ratio was 105% last year, while free cash flow was negative.
- The Boeing Company (BA) – Dividend Yield 3.1%
Boeing is probably the healthiest company among the Dow’s highest paying dividend stocks. Unfortunately the company’s bright future is no longer a secret, and the stock is probably overextended short-term.
But investors have good reasons to be interested. Boeing has increased free cash flow in each of the last five years, by an average of 6% per year. EPS have grown from $5.11 to $7.61, a rate of 8% per year. And Boeing has increased its dividend by nearly 20% per year, while reducing its share count each year.
This year, revenues are expected to decline slightly, but EPS are expected to soar 29% as Boeing completes backlogged orders and continues to improve profitability. And next year, revenue growth of 2% is expected to contribute to EPS growth of 9%. Higher defense spending in the U.S. could mean even those growth numbers are conservative.
- International Business Machines (IBM) – Dividend Yield 3.1%
IBM is another potential buy for investors looking for high dividend blue chip stocks. Revenues peaked in 2011 and have declined consistently since, as cloud competitors ate IBM’s enterprise computing lunch. But IBM has been winding down older operations in an orderly fashion while investing in faster-growing businesses, maintaining margins and free cash flow.
Revenues are expected to be about flat for the next two years, but EPS should grow slightly. And despite annual dividend increases of about 11% per year, the company’s dividend payout ratio remains reasonable at 44%; based on free cash flow it’s even lower.
Technically, the stock bottomed in early 2016 and has since rebounded about 40%. It’s now testing overhead resistance from 2015.
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Chloe Lutts Jensen developed Cabot's proprietary Individualized Retirement Income System (IRIS) and to provide both high income and peace of mind. If you’re retired or thinking about retirement, her advisory is designed for you.