The Dow Jones Industrials (DJINDICES:^DJI) are a fertile source of great investment ideas, with all of its 30 components paying dividends for income-hungry investors. One Dow stock stands above the rest for its long track record of boosting its dividend over time and its lucrative current yield. Below, you'll find out more about that stock and why it has everything that dividend investors want.
There are several Dow stocks that offer much of what dividend investors would want. Coca-Cola (NYSE:KO), for instance, boasts a 53-year history of giving shareholders annual dividend increases, and the beverage giant's shares currently pay a dividend yield of more than 3%. Wal-Mart (NYSE:WMT) doesn't have quite as long a history of dividend increases, but at 42 years, it's hard to be overly critical of the retail behemoth's dividend policy. Wal-Mart's yield of 3.3% is also above average for Dow Jones Industrials stocks.
Yet Coca-Cola and Wal-Mart both have challenges that pose potential trouble for dividend investors. Coca-Cola has seen interest in its key soft-drink segment start to dry up, as competition on two fronts has taken some of the fizz out of its core business. Health-conscious customers worry about the long-term health impacts of sugary and artificially sweetened carbonated beverages and have gravitated toward non-carbonated alternatives. Meanwhile, younger customers have embraced energy drinks, and Coca-Cola recently divested its energy-drink business as part of its strategy to invest externally in non-core business areas. Those factors have called Coca-Cola's future growth into question.
For Wal-Mart, a host of issues are holding the company back. Wal-Mart has already warned that wage pressures and the need to invest heavily in expanding its e-commerce capabilities will weigh on earnings into next year. Sluggish sales trends have improved somewhat but still aren't in line with what investors have seen over the long run.
How Procter & Gamble rules the Dow
Consumer products leader Procter & Gamble (NYSE:PG) has the best current combination of what dividend investors want to see. A 3.5% dividend yield is in the upper echelon of Dow stocks, and the company's 59-year history of raising its dividend every year is the longest among the Dow 30.
To be fair, Procter & Gamble has seen some of the same challenges as those facing Coca-Cola, Wal-Mart, and other Dow dividend stocks. P&G's organic sales growth has slowed down, with volumes falling more than the company could recover through higher prices. Yet the consumer products giant has taken big steps to cut costs, and that has helped keep earnings moving higher.
Moreover, much of the difficulty that P&G has seen stems from the strength of the U.S. dollar, to which the company is more exposed than most of its Dow peers. P&G gets nearly two-thirds of its revenue from overseas, and the resulting foreign-currency impacts have hurt its earnings growth substantially. In the future, as the dollar's strength subsides, most of those following the stock expect Procter & Gamble to return to a much healthier earnings growth rate. That growth should in turn support future dividend increases down the road.
Billion-dollar brands have given Procter & Gamble a worldwide reputation for excellence, and shareholders have reaped the rewards over the decades. Looking forward, Procter & Gamble is the Dow dividend stock that sports the best combination of favorable traits to keep it delivering the dividends so many investors count on.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool has the following options: long January 2016 $37 calls on Coca-Cola, short January 2016 $43 calls on Coca-Cola, and short January 2016 $37 puts on Coca-Cola. The Motley Fool recommends Coca-Cola and Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.