Most of the stocks in the Dow Jones Industrial Average pay dividends. And most of these Dow stocks delivered negative returns in 2022. That's to be expected in the dismal market conditions that prevailed throughout much of the year.
However, there were a handful of huge winners. Here are the three best Dow dividend stocks of 2022 -- and whether or not they're good picks to buy for 2023.
1. Chevron
Chevron (CVX +2.70%) ranks as the best-performing Dow dividend stock of 2022. Shares of the oil and gas giant skyrocketed more than 50%, driven in large part by high fuel prices.
NYSE: CVX
Key Data Points
Investors didn't only benefit from this impressive gain, though. Chevron also rewarded shareholders with a great dividend, which the company increased for the 35th consecutive year. The dividend yield currently stands at 3.2%.
The chances that more dividend hikes are on the way appear to be pretty good. Chevron has a low dividend payout ratio of under 32%. The company expects to be able to easily fund its dividend program plus buy back shares even if the Brent crude oil price falls nearly 40% below current levels.
2. Merck
Merck (MRK 0.12%) didn't lag far behind Chevron last year. The big pharma stock soared close to 45% in 2022. Merck had plenty of positive developments that served as catalysts, including great results from a late-stage clinical study evaluating sotatercept in treating pulmonary arterial hypertension.
NYSE: MRK
Key Data Points
The drugmaker announced in December 2022 that it was increasing its dividend by 5.8%. Merck's dividend yield factoring in this increase is a little over 2.6%.
CFO Caroline Litchfield told analysts in Merck's third-quarter conference call that the company "remain[s] committed to our dividend with the goal of increasing it over time." Merck's strong cash flow should enable the drugmaker to fulfill that commitment.
3. The Travelers Companies
There was a big gap between No. 2 and No. 3 among the Dow dividend stocks in 2022. However, The Travelers Companies (TRV +0.94%) delivered a solid gain of more than 20% thanks to a big surge in the fourth quarter of the year.
NYSE: TRV
Key Data Points
That Q4 spike came after Travelers reported better-than-expected earnings results. While net income fell year over year, the decline was due to the losses from Hurricane Ian, one of the most powerful hurricanes in decades.
Travelers offers a solid, although not spectacular, dividend. Its dividend yield currently stands at a hair under 2%. The property and casualty insurer could easily afford to raise its dividend, however, with a payout ratio of only 26.5%.
Good picks for 2023?
Are these top three Dow dividend stocks of 2022 good picks for the new year? Wall Street seems to think that one of them is, but the other two are iffy.
Analysts are least optimistic about Travelers. Nearly three-quarters of the analysts surveyed by Refinitiv in December didn't recommend buying the insurance stock.
There's mixed sentiment about Merck. A little over half of the analysts who cover the stock think it's a good pick to buy. The rest recommend holding Merck.
On the other hand, many on Wall Street remain quite enthusiastic about Chevron's prospects. Two-thirds of the analysts surveyed by Refinitiv rate the oil giant as a buy or strong buy.
I think that all three of these stocks could deliver solid returns over the long term. But my hunch is that Wall Street has it right about the ranking over the next year.
I'm least confident about Travelers. 2023 could go either way for Merck, in my view. However, I suspect that strong sales growth for Keytruda combined with increasing momentum for the company's newer drugs could enable the pharma stock to keep up its winning ways.
Of these three Dow dividend stocks, I think that Chevron is the best pick for the new year. I agree with the analysts who believe that another bull market for oil is coming in 2023. Chevron should benefit if this prediction comes true.
