If you're looking for the best blue-chip stocks in the U.S. market, the logical place to find them is among the Dow Jones Industrials (INDEX: ^DJI ) . But as I looked at yesterday, even some Dow stocks don't do the best job of giving investors the income they need right now through dividends.
Paying a healthy, growing dividend is such an important indicator of a stock's overall potential that I believe stocks that can't deliver on the dividend front don't truly deserve a spot among the elite 30 stocks in the Dow average. Fortunately, you can find plenty of good candidates outside the Dow clamoring to gain admittance.
Dividends for the Dow
Today, I want to look at four stocks I think deserve serious consideration for a spot among the Dow 30. Each has a shareholder-friendly dividend policy now, along with the potential to sustain even larger dividend growth going forward.
Altria (NYSE: MO ) : 5.7% dividend yield, 93% payout ratio
Altria has the distinction of being a former member of the Dow. Yet after the company spun off Kraft and Philip Morris International, it got booted out of the average to make room for Bank of America in early 2008.
That, of course, turned out to be an ill-advised substitution, coming as it did on the cusp of the financial crisis. But even leaving aside the terrible timing, taking out even the much-reduced Altria removed the tobacco industry's undisputed leader from the Dow -- an industry that has historically produced some of the most lucrative payouts for investors. With B of A struggling to make much smaller dividend payments, reversing course and getting Altria back into the Dow would make dividend investors much happier.
Abbott Labs (NYSE: ABT ) : 3.5% dividend yield, 64% payout ratio
Abbott isn't going to get into the Dow for one big reason: It's splitting itself into two parts. Once its division is complete, Abbott will have a medical-device stock and a pharmaceutical stock, with each separate company getting roughly half of Abbott's current revenue.
But Abbott puts the dividend records of larger peers Pfizer and Merck to shame. Abbott's dividend has risen more than 60% in the past five years, compared with a big cut for Pfizer and a completely flat performance for Merck before its recent 10% increase last month. If only Abbott weren't planning its spinoff, it could make a worthy replacement for either one -- even though its yield is currently less than Pfizer's and Merck's.
Freeport-McMoRan Copper & Gold (NYSE: FCX ) : 2.2% dividend yield, 55% payout ratio
Mining companies aren't well known for their dividends. That's because most of them have to plow all their available cash back into their capital-intensive mining operations.
But Freeport-McMoRan has ridden the wave of both gold and copper prices to lofty heights. And throughout its history, it has done a good job of returning money to shareholders -- albeit with some hiccups along the way. Even if aluminum ends up giving way to rival materials like carbon fiber and plastics, copper and gold will always have a place in the economy. Freeport delivers both, and with one of the biggest yields in the industry, it'd make a good representative of the metals industry in the Dow.
Waste Management (NYSE: WM ) : 4.1% dividend yield, 65% payout ratio
Trash might not seem like an industry per se, but Waste Management has been a pioneer there, with its recycling and waste-fueled power-generation initiatives helping to build its presence in recent years.
Given its new focus on electronic waste, Waste Management might make a good replacement for Hewlett-Packard. With several other tech giants already in the Dow, making room for a different industry would help diversify the Dow -- and Waste Management's 4%-plus dividend yield puts HP's 1.8% to shame.
Go for the gold
The competition to become a member of the Dow Industrials is obviously huge. But these four stocks would help the Dow make strides toward being an even better measure of the dividend-paying stock market. That can only help cement the Dow's importance going forward.
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