Dividend investing has long been a popular strategy for generating passive income while benefiting from the long-term growth of large, established companies. For dividend investors, the 30 component stocks of the Dow Jones Industrial Average (DJIA) offer a fertile hunting ground for mature, cash-rich blue chip firms with long histories of rewarding shareholders.
By comparing current dividend yields, investors can identify the Dow stocks offering the most generous income payments relative to their stock prices. Keep in mind, that unusually high yields above 5% may signal underlying business challenges or an unsustainable dividend at risk of being cut. Scrutinizing dividend safety and growth prospects is critical when targeting high yields.
This article will highlight the 10 highest-yielding Dow dividend stocks to consider for an income portfolio. Each offers an attractive yield from a dominant company, although risks remain for some.
1. Walgreens Boots Alliance (WBA)
Dividend Yield: 9.03%
Annual Dividend: $1.92 per share
Pharmacy retail giant Walgreens has struggled amid lower prescription reimbursement rates and competition from online retailers. The stock plunged over 30% in 2022, propelling its dividend yield above 9% – the highest in the Dow. Investors are concerned about the sustainability of Walgreens’ generous payout given its challenges.
However, the company maintains a strong free cash flow exceeding $4 billion annually. This well covers the $1.5 billion in dividend payments. The payout ratio is also reasonable at 35% of earnings. If Walgreens can successfully build its healthcare services segment and online retail channel, the sky-high yield may become more sustainable. But in the near term, uncertainty persists.
2. Verizon Communications (VZ)
Dividend Yield: 8.43%
Annual Dividend: $2.66 per share
Verizon is one of the largest telecommunications companies in the U.S. Along with AT&T and T-Mobile, Verizon dominates the domestic wireless market. However, subscriber growth has stagnated in the saturated U.S. mobile phone industry. Verizon’s high dividend yield reflects its stock weakness resulting from modest growth estimates.
But Verizon’s payout remains quite secure, at just 47% of earnings. The company produces substantial free cash flow exceeding $30 billion, providing great coverage of the $10 billion annual dividend cost. Verizon also boasts dividend longevity, with 15 consecutive years of payout hikes. For a mega-cap telecom with essential services and a dominant network, Verizon offers bond-like income.
3. 3M Company (MMM)
Dividend Yield: 6.93%
Annual Dividend: $6.00 per share
Industrial conglomerate 3M manufactures a diverse array of products including adhesives, healthcare supplies, electronic components, office products, and more. The company operates worldwide serving both consumers and businesses. 3M has paid dividends without interruption for over 100 consecutive years, making it a Dividend King.
However, 3M has faced lawsuits alleging environmental damage and has been weighed down by pension obligations. The stock sits 30% off highs, inflating its dividend yield close to 7%. But 3M’s cash flows still easily support the dividend with a sustainable payout ratio under 75%. Income investors can likely rely on 3M’s impressive dividend longevity persisting.
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4. Dow Inc. (DOW)
Dividend Yield: 5.66%
Annual Dividend: $2.80 per share
Chemical manufacturer Dow Inc. was formed from the $130 billion merger of Dow Chemical and DuPont, which was subsequently separated into three companies. Dow maintains a dividend history tracing back to 1912 through its previous corporate identities.
Demand for Dow’s chemicals and materials from the packaging, automotive, and construction industries has delivered strong earnings. The stock still offers an above-average yield over 5.5%. Dow produces substantial free cash flow that should continue supporting the attractive dividend.
5. International Business Machines (IBM)
Dividend Yield: 4.84%
Annual Dividend: $6.64 per share
Legendary technology firm IBM operates one of the world’s largest technology services and cloud computing providers. However, IBM has experienced slowing growth as its legacy IT solutions mature. Its stock has lagged behind other tech giants, driving the dividend yield close to 5%.
But IBM maintains tremendous financial strength, with annual free cash flow exceeding $11 billion amply funds its $5.7 billion dividend cost. IBM has increased its payout for 27 consecutive years, qualifying it for the S&P 500’s Dividend Aristocrats. The company’s blue-chip reputation and entrenched customer base provide safety to IBM’s above-average dividend.
6. Goldman Sachs Group (GS)
Dividend Yield: 3.67%
Annual Dividend: $11.00 per share
Investment banking leader Goldman Sachs profits from strong trading revenues as well as advisory and wealth management fees. Its dividend has room to run, at just 16% of projected 2023 earnings. While volatile investment banking results can fluctuate, Goldman’s diversified business segments and prudent balance sheet management support a safe payout with room for growth.
Goldman handily passed Federal Reserve stress tests in 2022, allowing increased dividends and buybacks. The company doubled its quarterly dividend between 2020 and 2022. Goldman has only paid dividends since 2019 but has quickly embraced returning capital to shareholders.
7. Chevron (CVX)
Dividend Yield: 3.62%
Annual Dividend: $6.04 per share
Oil giant Chevron produces 2.7 million barrels of oil equivalent each day and reported a 148% earnings surge in 2022 on high energy prices. Chevron maintains a rock-solid Aa2 credit rating and grew its dividend annually for 35 straight years through the ups and downs of the oil markets.
With the sector’s strongest balance sheet, Chevron is emerging from the downturn in excellent financial condition. The company covers its dividend 1.8 times over with cash flow and earlier suspension of buybacks gives flexibility if oil prices retreat again. Chevron has the wherewithal to sustain its 3.6% dividend yield for income investors.
8. Coca-Cola Company (KO)
Dividend Yield: 3.37%
Annual Dividend: $1.84 per share
Coca-Cola is a legendary dividend payer that has increased its annual payout for 60 consecutive years, earning it Dividend King status. Its portfolio of sparkling soft drinks and beverage brands are enjoyed worldwide. KO shares the advantages of a consumer defensive stock, holding up better than the broader market during downturns.
Coca-Cola generates steady earnings and over $10 billion in annual free cash flow that amply supports continuing its dividend growth tradition. The company aims to return about 75% of cash to shareholders through dividends and buybacks each year. Investors can likely rely on Coke’s dividend persisting given its staying power over decades.
9. Johnson & Johnson (JNJ)
Dividend Yield: 3.11%
Annual Dividend: $4.76 per share
Johnson & Johnson is a diversified healthcare conglomerate with well-known consumer brands like Band-Aid, Tylenol, Neutrogena, and more. J&J has paid dividends since 1944 and holds Dividend Aristocrat status after increasing the payout for 60 straight years.
J&J’s earnings growth reaccelerated following its role in producing COVID-19 vaccines and pharmaceutical sales picking back up. With risks from past talc litigation subsiding, J&J’s dividend growth story appears back on track after a pause during the pandemic. Investors can likely rely on the 3%+ yield.
10. Amgen Inc. (AMGN)
Dividend Yield: 3.06%
Annual Dividend: $8.52 per share
Biotechnology leader Amgen uses advanced human genetics research and tools to develop innovative medicines that improve people’s lives. Amgen has raised its dividend by at least 10% annually since initiating payouts in 2011. Earnings per share grew 22% in 2022, as Amgen’s drugs including osteoporosis treatment Prolia witnessed strong volume gains.
The company aims to return around 75% of free cash flow to shareholders through dividends and buybacks. Management stated its intention to grow future dividends on pace with earnings. Amgen’s promising drug pipeline and deep financial resources support its above-average dividend yield.
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Factors to Consider When Investing in Dow Dividend Stocks
The Dow’s high-yielding dividend payers offer a balanced risk-return profile for income investors. When analyzing the names above, keep these factors in mind:
- Dividend Safety – Prioritize payout coverage and sustainability using metrics like earnings ratios and cash flow coverage. Avoid precariously high yields.
- Business Stability – Favor companies with steady earnings, modest debt, and enduring competitive advantages during recessions.
- Growth Prospects – Opt for companies with expanding profit drivers and dividend growth over high static yields.
- Diversification – Mix dividend stocks across various sectors and industries to avoid concentration.
- Valuation – Ensure the stock price fairly reflects risks and growth outlook relative to peers.
- Personal Objectives – Align investment selections with your desired income, time horizon, risk tolerance and tax considerations.
Build a Balanced Dow Dividend Portfolio
The 30 stocks of the Dow Jones Industrial Average represent many of the most prominent and financially sound companies across American industry. While growth has slowed for some mature businesses, the Dow maintains an admirable dividend yield overall, with many members demonstrating dividend increases stretching over decades.
By cherry-picking the top 10 highest-yielding Dow stocks above, income-oriented investors can build a balanced, blue chip dividend portfolio to generate a stable income stream. Maintaining a diversified mix of industries and monitoring dividend coverage will help ensure a sustainable payout over time.
The Dow’s solid dividend payers exhibit the traits retirement savers need from income stocks as part of a well-rounded portfolio. Combining the most attractive high-yielding Dow stocks allows the creation a customized dividend portfolio from battle-tested, prestigious companies.
