The Dow Jones Industrial Average (DJINDICES: ^DJI) is an index of 30 top blue chip stocks. These are leaders in their fields, and since they're mostly large and established, they lean toward value, not growth. Indeed, 29 of them pay a dividend, with the exception being Amazon, which became a Dow component only a few weeks ago.
Investing in Dow Jones stocks can be a smart move as these are companies with leading positions that provide strong moats protecting them from competition and potential. But being in the Dow doesn't automatically make a stock a buy. Even a high dividend yield doesn't make a stock a default buy. In fact, it's often a reason for caution, since it could be caused by a declining stock price.
The three top-yielding Dow Jones stocks as I write this are Verizon (VZ 1.50%), 3M (MMM 0.25%), and Dow Inc. (DOW 0.33%). Let's see if they look like worthy investments right now.
1. Verizon: 6.4% yield
Verizon stock hasn't delivered for investors over the past few years; it's down 28% over the past five years, and that includes a 13% gain year to date. Even with dividends included, it has seriously underperformed the broader market as measured by the S&P 500 index over the past five years.
However, as the year-to-date gain demonstrates, things might be changing at Verizon. Some of Verizon's older businesses have been sluggish, but its investment in its 5G infrastructure, which is the newest available technology, is paying off.
Wireless services revenue increased 3% year over year in the fourth quarter, and the company is now benefiting from its investments with higher free cash flow and lower expenditures. It added 413,000 net broadband subscribers in the 2023 fourth quarter, representing the fifth consecutive quarter over 400,000.
Verizon has raised its dividend for 17 years, which is a reliable track record and an important consideration when choosing dividend stocks. If you're looking for passive income, Verizon can provide that, and it doesn't look like the dividend is in any danger.
2. 3M: 5.8% yield
3M has also disappointed investors over the past few years, but the reasons are more acute. It's been dealing with a host of issues, notably that it hasn't been churning out the innovations it became famous for over many years. It's also in the middle of settling several lawsuits. As a result, 3M stock is down 56% over the past five years.
The company has been making moves to get back on track, and it spun off a healthcare business called Solventum this week. It's taken other actions to simplify its structure and reduce expenses, and while sales were down a bit in the 2023 fourth quarter, margins improved. It's getting a new CEO starting May 1, and it serves some sectors, such as semiconductor materials, that could be strong growth drivers in the near future.
Passive income investors might find the dividend yield attractive, and 3M is a Dividend King, with one of the longest streaks of annual raises of any stock at 65 years. But there's a lot going on at 3M that doesn't look very attractive for investors right now, and other high-yielding stocks offer more stability.
3. Dow Inc.: 4.9%
Dow is a chemical company that was spun off from what's now DuPont de Nemours in 2019. It's been dealing with near-term challenges, like many companies, managing through the impact of inflation, since it manufactures a broad range of chemical substances for business-to-business clients to use in products and manufacturing.
Dow stock has done better than the other stocks on this list, up 10% over the past five years, and up 7% year to date.
Although there might be continued pressure in the near term, Dow has a solid balance sheet that makes it attractive to investors. Since the spinoff, it has achieved its commitments stated at that time, which include industry-leading cash generation and debt reduction, as well as disciplined capital allocation, and return on invested capital (ROIC) that's sustainably higher than 13%.
Dow (or one of its affiliates) has paid 450 dividends consecutively since 1912, which is an incredibly impressive run. However, it has not raised the dividend since the spinoff, and it currently pays $0.70 per share per quarter.
Dow may not provide dividend growth, but it does offer a reliable, high-yielding dividend that's probably the most appealing stock on this list for investors seeking low-risk passive income.
