3 Dow Dividends That Deliver

Investors hoping to save for retirement find themselves in many ways find themselves stuck between a rock and a hard place. Interest rates currently sit around historic lows and show no signs of increasing the short-term, as we saw Federal Reserve Chairman Ben Bernanke announce his intention to keep rates at or near their current levels possibly into 2014. And while this kind of clarity does help investors in some ways, it also limits the options of those wanting to grow their nest eggs meaningfully without taking any preposterous risks.

Dividend investing -- enter stage right.

In this current environment, we see many investors looking to dividends as a means of gaining some of the investment income they so desperately seek.  And while they certainly carry some heightened risks, shares of large, stable, and dedicated dividend payers seem like a sensible approach to address this need.

In terms of places to start your search, companies traded on the Dow Jones Industrial Average (INDEX: ^DJI  ) , an index consisting of 30 large companies, makes for a solid place to start. Let's take a peek at some of the average figures for the Dow and three of the more intriguing candidates I see in the index.

Company Name

Market Capitalization

Dividend Yield (%)

5-Year Annual Dividend Growth Rate (%)

Payout Ratio (%)

Dow Jones Average $126.1 billion 2.7% 3.5% 40.7%
Johnson & Johnson (NYSE: JNJ  ) $179.0 billion 3.5% 9.1% 43.5%
Intel (Nasdaq: INTC  ) $136.1 billion 3.1% 14.4% 30.6%*
McDonald's (NYSE: MCD  ) $100.9 billion 2.8% 20.4% 48.7%*

Source: S&P Capital IQ.
*Denotes the payout ratio from 2010.

These companies all offer the dividend-seeking investors a lot to like. Johnson & Johnson recently delivered a solid earnings report last week. The company, which produces such ubiquitous items as Band-Aids and Tylenol as well as medical devices and prescription pharmaceuticals, has nice diversification along its three main business lines: Consumer, Pharmaceuticals, and Medical Devices. With a debt-to-equity ratio just under 30% and $31 billion of cash on its books, the company looks safe and stable.

Intel, the king of the semiconductor market, also recently reported upbeat earnings. Coming off a rough year for the semiconductor segment as a whole, the company continues to try to position itself to dominate in our increasingly mobile-connected world. Intel plans to push its new Medfield processors more and more into smartphones, an area where its archrival, ARM Holdings (Nasdaq: ARMH  ) , dominates. Given the substantial growth we already see under way in smart devices, and its long-term, game-changing potential, Intel would do well to break ARM's virtual stranglehold in this key market going forward. Nonetheless, Intel sees itself with an extremely strong presence in the semi market and should thrive well into the future.

McDonald's generated the best performance of all Dow components in 2012, and the company shows no signs of slowing down. It recently reported an impressive earnings report. For its last quarter, revenue and profits increased at double-digit rates overall. The company also has some intriguing expansion plans. It intends on opening 1,300 more stores and renovating 2,400 more stores, a $2.9 billion endeavor. Having a solid game plan and growing its payouts as such high rates, the company looks like a great idea for dividend investors.

Foolish bottom line
Investors clamoring for income can do quite well at looking at some of the Dow's best blue-chip stocks. Remember, though, that stocks do carry greater risks than holding bonds, and investors should never take risks they cannot afford. It takes a 100% gain to recover from a 50% loss. While I certainly don't see that in the future for these stocks, investors always need to focus on taking intelligent, calculated risks. That being said, I think the dividend stocks we've looked at here stand a strong chance of providing stable, safe income for investors for years to come.

And while these large Dow dividends are great, they sometimes lack the explosive potential of smaller companies. If you're looking for something more, The Motley Fool recently composed a research report detailing its Top Stock for 2011. Better yet, we made it absolutely free to our readers, so access your free copy while you still can.

Andrew Tonner holds no financial position in any of the companies mentioned in this article. The Motley Fool owns shares of Intel and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of McDonald's, Johnson & Johnson, and Intel and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On January 30, 2012, at 5:41 PM, xetn wrote:

    The Fed's statement on interest rates relate to the fed funds rate. The Fed does not really have much control of this rate since 2008 because the banks are not lending and the fed funds rate is for overnight loans between banks, Since virtually no banks are lending except to the Fed itself, there is no need for fed funds.

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