This has been a trying year for investors in every sense of the word. Each of the three major U.S. stock indexes has tumbled into a bear market, while the bond market is suffering through its worst year on record. There simply haven't been many safe-havens.
But on the bright side, short-term pain for the stock market can often lead to long-term gains for patient investors. This is especially true for those looking to buy dividend stocks.
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Income stocks bring a multitude of advantages to the table. For instance, companies that pay a regular dividend are almost always profitable. What's more, they're typically time-tested and have successfully navigated their way through economic downturns and/or recessions before. And did I mention that dividend stocks have substantially outperformed their non-paying peers over multiple decades?
Yet the best aspect of dividend stocks just might be that you don't have to look far to find well-known companies capable of delivering inflation-crushing yields -- at least on a historic basis. The timeless Dow Jones Industrial Average (^DJI 0.39%) is home to three supercharged income stocks that are ripe for the picking. If you were to invest $20,400 (split equally three ways) in the following three high-yield Dow stocks, which sport an average yield of 5.91%, you'd be able to collect $300 in quarterly dividend income.
Walgreens Boots Alliance: 5.33% yield
The first tried-and-true Dow Jones stock that can help investors generate $300 in quarterly income from an initial investment of $20,400 (split three ways) is pharmacy chain Walgreens Boots Alliance (WBA 2.47%). Not only is Walgreens one of the highest-yielding Dow components at 5.33%, but it's increased its base annual payout for 47 consecutive years.
One of the reasons Walgreens has been such a steady dividend stock for decades is due to the fact that healthcare stocks are defensive. Regardless of how the economy or stock market perform, there's always demand for prescription drugs, medical devices, and various healthcare services. In short, there's safety in numbers behind Walgreens' operations.
Although foot traffic into Walgreens' stores took a hit during the lockdown phase(s) of the pandemic, the company has implemented numerous changes designed to boost its operating margins and increase its organic growth rate.
As you might imagine, cost-cutting is part of the plan. Walgreens had already shed more than $2 billion in annual operating expenses. But reducing costs only moves the needle so far. What's far more intriguing is where the company has been spending its cash.
Probably the most-promising venture undertaken by Walgreens Boots Alliance is its partnership with VillageMD (Walgreens is also a majority owner of VillageMD). The two have opened 152 full-service healthcare clinics co-located at Walgreens stores (through Aug. 31, 2022) and aim to reach 1,000 of these physician-staffed clinics by the end of 2027. Being physician staffed differentiates these clinics from its peers and provides a catalyst to bring customers back into its stores.
Walgreens is also investing in its online presence. While this will always be a brick-and-mortar-driven operating model, the convenience and sustained organic growth potential of online purchasing can't be overlooked.
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Verizon Communications: 7.03% yield
A second high-yielding Dow stock that can help investors bring home $300 in quarterly dividend income is telecom behemoth Verizon Communications (VZ 1.05%). Verizon's 7% yield is the high-water mark within the 30-component Dow Jones Industrial Average.
As with Walgreens, Verizon benefits from being a major player in a very defensive industry. Over multiple decades, owning a cellular phone/smartphone and having access to wireless services has grown into something of a basic necessity for most consumers and businesses. With customer churn remaining low, Verizon is capable of delivering very predictable profits and cash flow year in and year out.
As I've been quick to note in the past, Verizon's best days are in the rearview mirror. But just because it's a mature company today, it doesn't mean it's devoid of catalysts capable of moving the needle. In particular, Verizon has two organic growth opportunities that make its forward-year price-to-earnings ratio of 7 looks extremely attractive.
First, there's the steady rollout of 5G-capable wireless infrastructure. Investing in 5G will be costly for Verizon, and upgrading its infrastructure to reach most Americans will take a few years. But given that it's been roughly a decade since the last round of wireless download speed upgrades, 5G should entice businesses and consumers to trade-in their older wireless devices and substantially increase their data consumption. This is all great news for a company whose wireless segment is driven by high-margin data consumption.
The other element of intrigue for Verizon is its bulky investments in 5G mid-band spectrum. In March 2021, Verizon announced that it had spent nearly $53 billion to acquire C-Band spectrum. This hefty investment should help the company offer 5G broadband services to 50 million households and 14 million businesses by mid-decade.
Though Verizon's sales growth isn't knocking anyone's socks off anymore, its 7% yield is rock-solid.
Intel: 5.37% yield
The third high-yielding Dow stock capable of helping you generate $300 in quarterly dividend income from an initial investment of $20,400 is semiconductor stock Intel (INTC -1.58%). At no point in the company's storied history has its dividend yield been above 5%, until recently.
There's no sugarcoating the fact that chipmakers like Intel are facing some very real headwinds. Global supply chain constraints (some caused by the COVID-19 pandemic), historically high inflation, chip export restrictions to China, and weakening domestic and international economic growth, are all reasons we've seen demand for semi solutions taper off in recent months. But smart investors aren't buying Intel to hold for a few months. They're buying for the (bad pun warning!) chips that are being put into play.
For instance, Intel should be able to rely on sustainably high cash flow from its legacy operations (e.g., personal computer (PC) central processing units (CPUs)), while coaxing healthy organic growth from its data center and ancillary operations. With businesses shifting their data into the cloud at an accelerated rate since the pandemic arrived, Intel's sizable server CPU market share should come in handy.
It's just as important for investors to understand that Intel isn't dying or going away anytime soon. Even with core competitor Advanced Micro Devices making inroads in PC, server, and mobile CPU market share, Intel remains the undisputed share leader in all three categories. As devices big and small become more technology-dependent, Intel's opportunities should only grow.
One of the more exciting developments of late is the CHIPS and Science Act being signed into law by President Biden. The CHIPS Act sets aside almost $53 billion to aid chipmakers with the construction of domestic manufacturing plants and offers design grants for new innovations. Intel recently broke ground on two new manufacturing plants in Ohio that are on track to be in operation by 2024.
And don't forget about autonomous vehicle company Mobileye, which recently debuted via initial public offering. Intel holds a majority stake in Mobileye, which has consistently been its fastest-growing operating segment (38% year-over-year sales growth in the September-ended quarter).
Intel's business isn't going to turn on a dime, but the puzzle pieces are in place for a strong performance during the next long-winded bull market. This makes its roughly 5.4% yield a no-brainer for patient income seekers.
