The Dow Jones Industrials (DJINDICES: ^DJI ) are remarkable in that all 30 member stocks pay dividends. That's one reason why dividend investors often gravitate to the Dow for great stock picks, especially given that many Dow components have long records of consistent dividend growth over time.
Yet smart shareholders go beyond these payouts to look at other ways that companies can return capital to their investors. Let's look at three Dow stocks -- AT&T (NYSE: T ) , ExxonMobil (NYSE: XOM ) , and IBM (NYSE: IBM ) -- that combine solid dividend yields with ample stock buybacks that in total give their shareholders a whole lot of money back.
AT&T is the highest-yielding stock in the Dow Jones Industrials, with a current yield above 5%. Given how much the stock pays out in dividends, what's remarkable is that in 2013 the telecom added another $13 billion in share repurchases to nearly $10 billion in dividends, effectively giving investors more than an 11% total dividend and buyback yield. AT&T is able to achieve this because of its massive past investment in its network infrastructure, both from its traditional wireline business and more recently with its wireless network. As AT&T depreciates those assets on its balance sheet, its earnings are artificially deflated, but cash flow is high enough to allow the Dow telecom to return huge amounts of capital to shareholders.
ExxonMobil has a far less impressive trailing dividend yield of 2.7%, although a recent increase boosted that figure above the 3% mark. What's really impressive about ExxonMobil, though, is that in addition to roughly $11 billion in total dividend payments over the past 12 months, the oil giant also bought back $16 billion in stock in 2013, putting its overall dividend plus buyback yield between 6% and 7%. Incredibly, that amount was actually less than in the two previous years, when buybacks easily eclipsed $20 billion annually. As costs of exploration and production have increased, ExxonMobil might have to spend more money to keep its production volumes up and therefore have less to return to shareholders in buybacks and dividends. For now, though, the biggest stock in the Dow Jones Industrials has more than enough cash flow to keep a balanced approach to treating shareholders well.
IBM has an even lower dividend yield of 2.3%, putting it in the middle of the Dow pack. But IBM has always had a consistent record of buying back stock alongside its dividends; over the past 12 months, the longtime Dow tech component has accelerated its buybacks with a whopping $19.4 billion to go with its roughly $4 billion in dividend payments. That puts IBM's buyback plus dividend yield well above 10% and shows the extent to which the company has relied on buybacks to boost earnings per share despite having tepid revenue growth.
Dividends and stock repurchases don't tell the whole story about companies in the Dow Jones Industrials, but looking beyond dividend yields to consider buybacks adds a dimension to the income investor's assessment of a stock. These three Dow stocks have impressive records that they'll likely build on in the years to come.
Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.