The Greatest Dividend Stock on the Dow

Investors have long looked to companies in the Dow Jones Industrial Average (INDEX: ^DJI  ) as a sweet spot for dividend-paying companies, and rightfully so. Even with newer technology-related companies (note that "new" is a relative term here), the index typically features mature, dominant names that have strong track records of rewarding their stockholders. Keeping that in mind, let's look at one stock that I think takes the cake as the best dividend stock in the Dow.

Show me the money
The one number that makes my case is 27%. It's the 10-year annual average growth rate for McDonald's (NYSE: MCD  ) dividend. It's a substantial factor in explaining McDonald's outstanding performance over the past 10 years. Consider that over the past decade the S&P 500 returned an average of 4% each year: Over that same period, McDonald's generated an average return of just less than 17%.

And better yet, the company shows no signs of letting up. It recently reported strong earnings, growing profits by 11%, although the company did warn that the impact of foreign exchanges presented potential headwinds. Despite the challenging macroeconomic environment, the company still managed to increase its revenue, traffic, and market share. Talk about impressive.

The king and his court
That's not to say that other Dow components don't deserve their moment in the spotlight as well. Three other Dow companies managed to raise their payouts at an average annual clip above 20% over the past decade: semiconductor stalwart Intel (Nasdaq: INTC  ) , Kraft (NYSE: KFT  ) , and Home Depot (NYSE: HD  ) . These companies share more in common than might meet the eye. Each one dominates a substantial portion of the market in which it operates, and each also generates strong cash flows and carries only a moderate amount of debt. In total, here we see established, relatively stable, cash-flow-rich companies that all have demonstrated strong commitments to returning cold, hard cash to shareholders.

Foolish bottom line
Investors looking to add some much-needed income to their portfolios would do well to look past a stock's yield alone. Although current yield certainly matters, companies that can consistently growth their payouts over time also represent a powerful driver of long-term returns.

Dow components do offer a lot to love, but they aren't the only show in town. In that spirit, the Fool has compiled a report called "Secure Your Retirement With 11 Rock-Solid Dividends." Better yet, we made it free for our readers, so access your free copy today.

Andrew Tonner holds no financial position in any of the companies mentioned in this article. The Motley Fool owns shares of Intel. Motley Fool newsletter services have recommended buying shares of McDonald's, Home Depot, and Intel. 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.


Read/Post Comments (0) | Recommend This Article (27)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1779041, ~/Articles/ArticleHandler.aspx, 9/2/2014 1:55:37 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement