The Biggest Dividends on the Dow

Dividend stocks are great because your cash outlay (stock purchase) turns into a cash inflow (dividend) within a relatively short period of time. The Dow Jones Industrial Average (INDEX: ^DJI  ) is a great place to look for dividend-paying stocks. All of the companies in the index pay dividends, while some have rewarded shareholders substantially by increasing their cash payments year after year. To get you started, I've ranked the top qq based on their forward dividend yields and provided some insight into their particular industries.

Make the phone company pay you
AT&T
and Verizon offer the highest yields in the Dow: 5.6% and 5.1%, respectively. Both businesses are capital intensive -- it isn't cheap to build a network -- but once the assets are in place, both businesses benefit from recurring revenues. The wireline business is declining, but that is offset by growth in wireless communications, in which AT&T and Verizon are particularly strong. Both have increased annual dividends significantly over the past five years -- AT&T (12%) and Verizon (10%).

Profit on growing health-care expenses
Merck
, Pfizer, and Johnson & Johnson offer respective yields of 4.4%, 3.9%, and 3.6%. All three face regulatory risks associated with the Patient Protection and Affordable Care Act (PPACA), but in my opinion, that risk is already priced into the stocks. If I had to pick one, I'd choose scandal-plagued Johnson & Johnson. Although it offers the lowest yield, it has been the most persistent in increasing its dividend -- 9% annually over the past five years.

It's not too late to profit from Thomas Edison
Too-big-to-fail General Electric (NYSE: GE  ) , which yields 3.5%, was founded in 1892 by Thomas Edison. The company's stock has struggled over the past 10 years -- returning -2% annually. But the company has strong businesses in aviation, energy, and health care. Based on its diversified business portfolio and its ability to develop expert managers, I'd expect the company to pay dividends for years to come.

Invest alongside Warren Buffett
Warren Buffett isn't necessarily a dividend investor, though he certainly likes to cash those dividend checks. He primarily invests in high-quality businesses with a sustainable competitive advantage. If he invests in a stock, it's worth consideration. Enter Procter & Gamble (NYSE: PG  ) , which yields 3.4%. It has a history of innovation and great brands, and Warren Buffett owns it. Buffett also owns Kraft Foods, which yields 3%, and Intel, which yields 3.1%.

Buy a "super major" oil stock
California-based Chevron is the highest-yielding (3.1%) energy stock in the Dow, and it's grown its dividend by 9% annually over the past five years. It's also the cheapest stock in the Dow based on price-to-earnings. If you're looking to generate income and profit on rising energy prices, Chevron is worth consideration.

The future is plastics
DuPont
(NYSE: DD  ) , founded in 1802, is one of the world's largest chemical companies. It yields 3.1%. The chemicals business is highly cyclical, but DuPont is clearly on the upswing -- its earnings have grown 19% annually over the past three years.

Dow stocks and beyond
If you're constructing a dividend portfolio, I'd take a close look at the 10 stocks above. But I also recommend taking a look at one of our newest special free reports: "Secure Your Future With 9 Rock-Solid Dividend Stocks." It details a group of dividend stocks, including familiar blue chips and some you may not have heard of, that you can count on to pay you back for decades to come. Get your free copy.

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


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  • Report this Comment On April 27, 2012, at 7:56 AM, cloggervic wrote:

    I don't see the point of restricting the selection to the Dow. It misses all the REITs like AGNC, CMO, ANH,NLY,HTS.... that pay way higher dividends - in the 13% to 17% region. Then, if you really want Blue Chip industrials that pay good dividends, get yourself a brokerage account in Sweden and buy Swedish blue chips on the Stockholm exchange like SKF, SKANSKA, SANDVIK, BILIA etc that pay higher dividends than the average DOW Blue Chip. Sweden is very stable with a tiny national debt to GDP ratio - much lower than the US debt mountain - and has a very good selection of world-class multinationals such as those mentioned above.

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