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The Dow's Best Dividend Stocks

By Dan Caplinger - Updated Apr 6, 2017 at 5:27PM

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These blue chips truly are the cream of the dividend crop.

Investors want the best, safest stocks they can get. To find them, taking a closer look at the 30 popular stocks of the Dow Jones Industrial Average (INDEX: ^DJI) makes all the sense in the world. But before you simply grab all the highest-yielding blue chips you can find and call it good, you should take a step back and ask yourself: What makes something truly a top dividend stock?

By the end of this article, you'll see eight top stock ideas from the Dow. But first, let me explain why finding the best stocks takes a little more digging.

Going beyond yield
These days, it's trivial for dividend investors to find out which stocks have the highest yields. But a stock that has a high yield now may turn out to be tomorrow's big loser, especially if a company simply hasn't come to grips with the harsh reality that a dividend cut is necessary. That makes buying high-yield stocks a riskier proposition than many investors know.

Because of those risks, I prefer stocks that have endured the test of time by proving they can provide consistent dividend growth even under challenging economic conditions. These stocks don't always have ultra-high yields, but they can help you sleep better at night -- because you won't consistently worry about whether the payout you've gotten in the past will still be there tomorrow. In my book, that makes the longest dividend streaks the most powerful indicator of success.

In fact, eight Dow stocks have paid higher dividends every year for at least a quarter-century. That qualifies them for status as Dividend Aristocrats, one of the most exclusive dividend-stock clubs a company can get into. Without any further ado, let's count down the stocks with the longest dividend streaks:

8. AT&T -- 27-year streak, 6.1% yield
The telecom giant is the top-yielding Dow stock, but it ranks only eighth by dividend streak. Having largely lost its legacy landline business, AT&T's growth prospects now come from mobile, and its struggles with its attempted merger with T-Mobile illustrate how challenging a business that is right now.

7. ExxonMobil (NYSE: XOM) -- 29-year streak, 2.5% yield
The company with the largest market-cap among U.S. stocks comes in at No. 7. Obviously, ExxonMobil has benefited from high oil prices, and its huge purchase of XTO Energy expanded its reach into the natural-gas industry. As long as fossil fuels remain the world's primary source of energy, ExxonMobil will treat shareholders well.

6. McDonald's (NYSE: MCD) -- 35-year streak, 3% yield
The pioneer of fast food has a long history, but it's definitely not resting on its laurels. Expanding its menu into coffee and its geographical reach into China and other emerging markets, McDonald's has tapped into growth potential that could support its dividend payouts for decades to come.

5. Wal-Mart -- 37-year streak, 2.6% yield
The biggest U.S. retailer is known for "always low" prices, but it hasn't skimped on its payouts to shareholders. Despite a challenging decade in which the stock has largely stagnated and growth has slowed, Wal-Mart keeps delivering dividends to its investors and remains tapped into consumer needs in what's been a hard economy.

4. Coca-Cola (NYSE: KO) -- 49-year streak, 2.8% yield
When it comes to beverages, Coke is it. The stock has also built a worldwide customer base and will benefit from long-term trends toward a growing emerging-market middle class.

3. Johnson & Johnson (NYSE: JNJ) -- 49-year streak, 3.6% yield
J&J is all things to everyone when it comes to health care. From Band-Aids and other popular consumer products to medical equipment and drug development, J&J has managed to survive a long string of recall problems over the past couple of years to maintain a strong showing in the health-care space.

2. 3M (NYSE: MMM) -- 53-year streak, 2.8% yield
Known popularly for Post-It Notes, 3M has its fingers in a wide range of consumer and industrial businesses. With a big reputation for innovation, though, 3M should be able to keep adapting to new conditions for years to come.

1. Procter & Gamble (NYSE: PG) -- 55-year streak, 3.4% yield
The ultimate consumer stalwart, P&G has grown not only from global dominance among its popular brands but also through smart strategic acquisitions, such as its purchase of Gillette back in 2005. With a growing world population demanding its products, P&G should see both growth and nice dividends well into the future.

Don't stop there
As I see it, these eight stocks are the best the Dow has to offer. But that doesn't mean they're the only good dividend stocks out there. That said, it's clear that some dividend stocks are safer than others. Learn about 11 of the strongest in this free special report from The Motley Fool.

Fool contributor Dan Caplinger sometimes settles for less than the absolute best, but only reluctantly. You can follow him on Twitter. He doesn't own shares of the stocks mentioned in this article. The Motley Fool owns shares of Coca-Cola, Johnson & Johnson, and Wal-Mart. Motley Fool newsletter services have recommended buying shares of 3M, Procter & Gamble, McDonald's, Wal-Mart, Coca-Cola, and J&J, as well as creating diagonal call positions on J&J, 3M, and Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy gives you its best every day.

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Stocks Mentioned

The Coca-Cola Company Stock Quote
The Coca-Cola Company
$64.83 (-0.32%) $0.20
Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
$92.38 (1.00%) $0.92
3M Company Stock Quote
3M Company
$147.23 (-2.01%) $-3.03
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$33,990.68 (-0.47%) $-161.33
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$149.38 (-0.37%) $0.55
McDonald's Corporation Stock Quote
McDonald's Corporation
$266.89 (0.23%) $0.60
Johnson & Johnson Stock Quote
Johnson & Johnson
$167.65 (0.05%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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