The 30 stocks in the Dow Jones Industrials (DJINDICES:^DJI) have a number of attractive features. Not only do the companies represent the leaders in their respective industries, but their businesses also have shown great success over the years, making them a good starting point for investors looking to start or add to a portfolio of individual stocks.
One consequence of the high quality of the Dow's components is that they produce enough income from their respective businesses to support paying dividends to their investors. Yet while all 30 Dow components pay a dividend, some of the companies are stingier about their payouts than others. Today, I'm taking a closer look at the four stocks in the Dow that have the lowest dividend yields, with an eye toward figuring out whether it's likely that they'll reward investors more in the near future.
Bank of America (NYSE:BAC), 0.4% dividend yield
Ever since the financial crisis, Bank of America has paid as little as possible to its shareholders in dividends: a single penny per share each quarter. But B of A hasn't had control of its dividend destiny. In 2011, the Federal Reserve submitted a request to the Federal Reserve to raise its dividend, but the Fed denied it.
Now, though, the bank has come a long way, making strategic divestitures of assets to raise capital and build a healthier balance sheet. With stress test results due out this Thursday and the Fed's Comprehensive Capital Analysis and Review the following week, B of A may finally get permission to boost its payout and get out of the Dow's dividend basement.
American Express (NYSE:AXP), 1.3% yield
For a company that relies on having its customers spend money, American Express has been pretty stingy with its own capital. Although the company boosted its dividend in early 2012, that increase was its first since early 2008. Moreover, AmEx certainly has the financial capacity to up its payout; it pays only about 20% of its earnings to shareholders. Moreover, this is the time of year when AmEx would traditionally consider a raise.
A look at AmEx's industry peers, however, shows that AmEx actually tops the puny yields of Visa and MasterCard by a fair margin. AmEx prefers to use share buybacks to return capital, as last year's decision to authorize a $5 billion share repurchase indicates. Moreover, with the demands of investing in new areas like mobile payments, it's understandable for AmEx not to pay a huge dividend -- and it seems likely that the recent rise in dividend tax rates will serve as a greater excuse not to raise payouts too far.
Alcoa (NYSE:AA), 1.4% yield
Alcoa hasn't changed its tiny $0.03-per-share quarterly dividend in the four years following its draconian payout cut, which sliced nearly 80% off its former dividend. Unlike most of the other components of the Dow, Alcoa has simply never recovered from the market meltdown in 2008, as conditions in the global construction and infrastructure industry haven't been strong enough to boost aluminum demand and get rid of a troublesome glut of the metal that has held prices down.
Moreover, Alcoa has made other use of its capital, looking at strategic acquisitions of promising assets at fire-sale prices. Although risky, the moves could well pay off in the long run. But until prices recover, Alcoa won't be in any position to raise its dividend anytime soon.
Disney (NYSE:DIS), 1.4% yield
Among all these low-dividend companies, Disney has performed the best by far. Yet that success has held the company's dividend yield down. Even though the entertainment giant has more than doubled its annual dividend in the past three years, the stock price has gained even more ground. That has left Disney's yield at its current low levels.
Arguably, keeping cash on hand has helped put Disney in position to make major deals like its $4 billion acquisition of Lucasfilm late last year. Yet with dividends representing less than a quarter of Disney's earnings, Disney could push its yield up further without jeopardizing its enviable financial position.
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Over time, stocks in the Dow industrials have generally done a good job of raising their dividend payouts over time. Hopefully, these four stocks will follow suit in the near future, helping their shareholders generate the income they need.
Fool contributor Dan Caplinger owns warrants on Bank of America. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends American Express and Disney and owns shares of Bank of America and Disney. 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 Motley Fool has a disclosure policy.