AI stocks may be propelling the new bull market to record levels, but these high-flying tech stocks aren't right for everyone.
If you're a retiree who counts on dividend income, for example, you're likely to steer clear of a sector that some believe is already in a bubble. Instead, you're betting off searching for new targets among blue chip stocks. There's no better place to look for blue chips than in the Dow Jones Industrial Average (^DJI 0.40%) a select index of 30 U.S. stocks that represent every major industry.
The top dividend stocks on the Dow have changed a bit since Walgreens Boots Alliance was removed from the blue chips and replaced with Amazon. Let's take a look at the top three dividend-paying Dow stocks today to see if any are worth buying.
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1. Verizon: 6.7% dividend yield
Verizon (VZ 1.17%) has been a popular dividend stock for years, but it's also been a disappointment for nearly as long. For several years, shares of the telecom headed lower as it lost market share to T-Mobile as it made strategic errors with its 5G rollout, costing it on coverage and losing customers as a result.
However, in recent quarters, Verizon has been on the rebound and its business has been stabilizing. The company has acquired new C-band spectrum to fill in a coverage gap in the midband spectrum that works well to provide both widespread coverage and can handle density.
After making efforts to repair those missteps, Verizon's postpaid phone subscriber growth has accelerated, and the stock has bounced off its earlier lows. The telecom giant isn't about to become a growth powerhouse -- management still expects its profit to decline this year -- but it seems to have overcome the biggest challenges facing the company. Verizon is highly profitable and the dividend is safe. It's a fine income stock to own, and shares could move higher if the company returns to profit growth.
2. 3M: 6.5% dividend yield
3M (MMM 0.46%) rivals Verizon for the highest-yielding Dow stock, but 3M is up there for the wrong reasons. The industrial conglomerate has rarely ever paid a dividend yield this high, but the yield has climbed because its stock price has fallen because of slowing growth on macro headwinds and other factors. The company also recently settled two multibillion-dollar class action lawsuits, which will weigh on its cash flow for close to the next decade.
There are also questions about whether 3M is still capable of being a disruptive innovator, as media reports have detailed a cultural malaise that has sunk into the company, stymying innovation, and the multibillion-dollar liabilities related to its PFAS "forever chemicals" and faulty military-grade earplugs could dissuade the company from further risk-taking.
The upcoming spinoff of its healthcare business could bring in as much as $12 billion over the next five years as 3M receives a windfall from the company to be known as Solventum, including a $7.7 billion special dividend at the time of spinoff and future dividends as 3M will retain a 19% stake in the business.
That will help 3M deal with its legal payments, but the struggles in the core business shouldn't be overlooked. Organic sales fell 3.2% in 2023, and the company expects organic sales growth of just flat to 2% for 2024. While 3M's yield is appealing, income investors can find healthier stocks to invest in elsewhere.
3. Dow: 4.9% dividend yield
Like 3M and other chemical companies, Dow (DOW 1.51%) has also struggled of late. While volume sales were up 2% in its fourth quarter, net sales were down 10% to $10.6 billion, reflecting slower global macroeconomic activity and falling prices. Local prices decreased 13% because of lower feedstock and energy prices.
Operating income also fell by 7% to $559 million.
Like other Dow Jones Industrial Average companies, Dow is a leader in its industry, but it has little control over the kind of inputs that can significantly affect its business, like commodity prices and the strength of the global economy.
Five years ago, Dow was spun off from DuPont after the two companies earlier merged, and the stock has mostly traded sideways since then, significantly underperforming the S&P 500. Based on the current headwinds facing the company and its forecast of continued softness in industrial demand into the first quarter, that pattern seems unlikely to change.
While its 4.9% dividend yield is reliable, the stock looks best avoided for now.
The best Dow Jones stock for dividend investors
Of these three stocks, the choice is clear. Not only does Verizon offer the highest yield of any Dow Jones stock, but it's also the only one of the three whose business, and stock price, are clearly moving in the right direction. Verizon is growing revenue in wireless service, its core business. It operates in a stable industry. It's righting past strategic errors, and it's past its peak of capital spending in the 5G cycle, setting it up for increased free cash flow.
It's the best Dow Jones stock for income investors today.
