For more than a century, American investors have looked to the Dow Jones Industrial Average (^DJI 0.40%) to monitor Wall Street's overall condition. It's the oldest index most of us will ever pay attention to, but it's also horribly shortsighted.
The 30 stocks that comprise the Dow Jones Industrial Average are weighted according to stock prices, not market cap. This means its most heavily weighted component can become its least influential component overnight by performing a stock split.
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At the moment, UnitedHealth Group is the Dow's most heavily weighted component with a share price north of $500. By market value, Apple is more than six times larger than UnitedHealth Group. In this price-weighted index, though, a 1% gain for the health insurer's stock price raises the Dow Jones Industrial Average's total value more than twice as far as an identical gain for Apple.
The Dow Jones Industrial Average has flaws, but it still deserves attention from income-seeking investors. That's because stocks aren't added to the index until they demonstrate an ability to generate profits on a recurring basis.
The average stock in the Dow Jones Industrial Average offers an unappealing 1.9% dividend yield at recent prices. These two stocks offer considerably more. Here's why they look like smart stocks to buy now and hold for at least a decade.
Verizon
Shares of Verizon (VZ 1.17%) offer a juicy 6.7% dividend yield at recent prices. Whenever you see a yield this high, it means investors are nervous about the company's ability to raise it further.
In Verizon's case, the market is worried about a debt load that rose to $150.7 billion at the end of 2023. This seems like a lot, but it's more manageable than it appears on the surface.
Verizon's debt load works out to about 2.6 times adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). This is on the high side, but Verizon has the means to steadily reduce its debt load and raise its dividend payout.
Verizon's investments in 5G spectrum are paying off with heaps of new fixed-wireless internet subscribers. The company reported 413,000 net-new broadband subscribers in the fourth quarter of 2023, which was the fifth quarter in a row with over 400,000 net adds.
Verizon generated $18.7 billion in free cash flow last year but spent just $11.0 billion to meet its dividend commitment. With rising subscriber revenue from popular broadband services and significantly lower expectations for capital expenditures, steadily raising its dividend commitment through the coming decade seems likely.
Amgen
Sales of innovative drugs many people literally can't live without have allowed Amgen (AMGN 0.22%) to raise its dividend payout an impressive 269% over the past decade. At recent prices, the stock offers a 3.1% yield that could rise several times over by the time you're ready to retire.
Amgen's been able to raise its payout at a blazing pace partly because Enbrel, an anti-inflammatory injection that's been around since 1998, still has patent-protected exclusivity in the U.S. market. A few years ago, Amgen was able to extend Enbrel's U.S. exclusivity into 2029.
Of course, Enbrel isn't the only patent-protected drug that Amgen successfully markets. In 2023, it reported record sales for 18 different brands.
These days, Amgen investors are enthusiastic about an experimental weight-loss drug tentatively named maridebart cafraglutide that could drive blockbuster sales down the road. Amgen recently announced encouraging results from a placebo-controlled phase 1 clinical trial. Top-line results from a larger phase 2 study should be ready by the end of 2024.
Shares of Amgen have been trading for 15 times forward-earnings expectations. At this reasonable valuation, investors could still realize market-beating gains over the long run even if Amgen's weight-loss candidate fizzles out this year. Buying some shares now and stuffing them into an income-generating portfolio looks like the right move.
