All of the stocks in the Dow Jones Industrial Average pay dividends, but most of them don’t have very high dividend yields. Only 10 of the 30 stocks in the Dow yield 3% or more. But because of the Dow’s selectivity, it can be a great place to turn for yield if you’re seeking Dividend Aristocrats (stocks that have raised their dividends at least 25 years in a row) or high dividend blue chip stocks. But what are the highest paying dividend stocks in the Dow?
Highest Paying Dividend Stocks In the Dow
- Verizon (VZ)
- IBM Corp (IBM)
- Exxon Mobil (XOM)
- Procter & Gamble (PG)
- Pfizer (PFE)
- Chevron (CVX)
- The Coca-Cola Company (KO)
- General Electric (GE)
- Merck & Co (MRK)
- Cisco Systems (CSCO)
Like the index itself, the highest paying dividend stocks in the Dow are well-established, high-quality American companies. Many are over 100 years old. However, many of these stocks’ best days are behind them. Some have very high dividend payout ratios that show they’re returning most of their cash to shareholders at this point—rather than reinvesting in their business.
Below, I take a closer look at each of the highest paying dividend stocks in the Dow and separate the dogs from the dividend champs.
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Cabot’s Best Dividend Stocks
Find Them in This FREE Special Report,
You get this free report and many others when you sign up for Cabot Wealth Daily, our free wealth-building advisory.
1. Verizon (VZ)
Dividend Yield 5.1%
Telecoms typically pay high dividends, and the highest dividend yield in the Dow almost always belongs to Verizon. Verizon is the largest U.S. wireless carrier, but faces stiff competition from number-two AT&T (T) and smaller competitors Sprint (S) and T-Mobile (TMUS). All four telecoms have spent the past couple years lowering prices and sweetening plans to lure customers, which has resulted in good deals for consumers, but has cut into corporate revenues and earnings. Verizon’s sales peaked in 2015, and the stock hasn’t made any progress in five years. A merger between Sprint and T-Mobile, currently under review, could alleviate some competitive pressure, although it would also allow the #3 carrier to more effectively compete with AT&T and Verizon on technology and benefits.
For its part, Verizon is investing heavily in forward-looking ventures, including the “internet of things” and digital content. But the stock has been in a $15-wide trading range for five years, stopped by bad news or a sector selloff every time it attempts to break out. The yield is safe—VZ’s dividend payout ratio is 52%—but that’s probably the primary reason to own the stock right now.
2. IBM Corp. (IBM)
Dividend Yield 4.3%
The second-worst performing Dow stock of 2017, IBM’s revenues have been declining since 2012. IBM was slow to adapt as computing and data storage moved to the cloud, and competitors were quick to swoop in. IBM reacted by winding down older operations and investing in faster-growing businesses, but margins and cash flow eroded despite their best efforts, and the stock peaked in 2013. The company has increased the dividend each year anyway, and IBM’s dividend payout ratio is getting dangerously high (historically IBM has maintained a payout ratio of between 20% and 30%.)
Things could be starting to turn around: revenues are expected to grow slightly this year, after five years of shrinkage. EPS are expected to rise by single-digits this year and next. However, I’d wait to see the start of an uptrend in the stock before committing.
3. Exxon Mobil (XOM)
Dividend Yield 4.0%
The first of two oil and gas companies on our list, Exxon is larger than Chevron (CVX), below, but has a slightly higher dividend yield. Like the rest of the energy sector, Exxon ran into tough times in 2014 and 2015, and XOM stock fell 30% from peak to trough. Exxon chose to maintain annual dividend increases, so it’s still on the Dividend Aristocrats list, although its dividend payout ratio hit 138% at one point.
That ratio started to improve last year, when revenues rose for the first time since 2013. This year analysts expect revenues to surge 26%, fueling 32% EPS growth. Longer-term predictions are also strong: EPS growth is expected average about 18% per year over the next half-decade. The stock, while choppy, looks like it may have bottomed in early April. However, be warned that the connection to oil prices means XOM can be volatile—the stock’s last sustained rally ended with a spectacular six-day, 15% drop in early February.
4. Procter & Gamble (PG)
Dividend Yield 3.9%
A Dividend Aristocrat, Procter & Gamble has a 61-year history of dividend growth. P&G sold the last of its food brands to Kellogg in 2012, and now makes mostly cleaning and personal care products. Well-known brands include Bounty, Crest, Tide and Pampers. Long-term, P&G is a reliable workhorse. But the company spent much of last year in a contentious proxy battle with activist investor Nelson Peltz, and the stock lagged the market badly. Then came a number of steep consumer staples selloffs this year, including one triggered by P&G’s first-quarter earnings report in April, which showed price declines across the board. The selloffs have pushed P&G to fourth place on our list of the highest dividend paying stocks in the Dow, with a yield of nearly 4%.
The future looks brighter. Analysts expect P&G to deliver 3% revenue growth in 2018 and 2019, fueling solid EPS growth of around 7%. The company’s dividend payout ratio, which hit 84% in 2016, is coming down. However, I’d wait for a rotation back into the consumer staples sector and a renewed uptrend in the chart before pulling the trigger.
5. Pfizer (PFE)
Dividend Yield 3.8%
The fifth-highest dividend yield in the Dow belongs to Pfizer. Originally founded as a chemical manufacturer by cousins Charles Pfizer and Charles F. Erhart in 1849, Pfizer is now one of the world’s largest pharmaceutical companies. Pfizer’s blockbuster drugs include Advil, Lipitor and Viagra, as well as some of the most-prescribed treatments for bacterial infections, pain, inflammation, depression, anxiety and other common conditions.
Pfizer was a Dividend Aristocrat until the company was forced to cut its dividend payout during the financial crisis. The company and the stock have been recovering slowly over the past decade, but the ride has been bumpy. Sales and earnings have fluctuated, and Pfizer’s dividend payout ratio hit 118% last year. However, revenues and earnings are both expected to grow this year and next, and Pfizer has beat EPS estimates in the last four quarters. But while the long-term trend is up, buy-and-hold investors have to ignore a fair amount of volatility.
6. Chevron (CVX)
Dividend Yield 3.6%
Chevron is one of the world’s largest oil companies, with energy exploration, production, refining, trading and transport operations that circle the globe. Founded in 1879, Chevron has paid dividends since 1970.
Like the rest of the energy sector, Chevron’s stock tanked in 2014, finally bottoming in late 2015, after losing 41% of its value. In the past two years, CVX has made up nearly all the losses, gaining almost 60%.
Chevron kept making dividend payments during the crisis, but didn’t increase its dividend for over two years. The stock’s dividend payout ratio popped over 100% several times, but has recently come down to 60%.
Revenues are expected to rise 21% this year, but growth will slow and possibly stop in 2019. EPS are expected to double this year, but again, to grow only 3% in 2019. The stock is equally choppy, and has a tendency to surge and crash with oil prices. But it is gradually trending up, and could be worth a look for investors with strong stomachs.
7. The Coca-Cola Company (KO)
Dividend Yield 3.5%
Coca-Cola is a blue chip stock, a dividend aristocrat, and a household name. But revenues have been declining since 2013, as consumers become more nutritionally savvy. Sales of bottled water—Coke owns the Dasani brand—are strong, but are still a small piece of the pie compared to soda sales. Coke is pulling out all the stops to keep their flagship brands relevant, re-launching Diet Coke in flavors like Twisted Mango and Zesty Blood Orange. But the efforts have yet to translate into stronger sales, and analysts are anticipating at least one more year of sales declines.
The good news for income investors is that four years of falling sales and three years of stock price stagnation have pushed KO’s dividend yield to a high of 3.5%. Of course, KO’s dividend payout ratio has also increased, and is currently well over 100%. Coca-Cola seems unlikely to be about to let their Dividend Aristocrat status lapse, but if they can’t get earnings growing again, they’re going to have to start finding the money for those dividends somewhere else soon.
8. General Electric (GE)
Dividend Yield 3.4%
The worst-performing Dow stock of 2017, GE has fallen 48% over the past 12 months. The company has appointed a new CEO, rolled out a turnaround plan, and slashed its dividend by 50%, but investors aren’t ready to forgive GE its misdeeds yet.
General Electric has a long and storied history. It’s the oldest continuous member of the Dow; its current tenure dates to 1907. The stock was also a dividend aristocrat until 2009.
But GE cut its dividend during the financial crisis, and even after reducing its financial exposure by spinning off most of GE Capital, GE remained saddled with challenges. The company’s transportation and oil and gas equipment businesses both saw demand shrivel up as oil prices fell in recent years. GE’s renewable energy business is growing, but isn’t yet large enough to offset declines on the conventional energy side. The recent dividend cut brought GE’s payout ratio down to 50%, from over 100%, but felt like a knife in the heart to long-term GE owners. And recently analysts have been downgrading GE frantically, and EPS are expected to fall 11% this year. Stay away for now.
9. Merck & Co (MRK)
Dividend Yield 3.3%
New Jersey-based Merck is a global pharmaceutical company. Merck produces a variety of widely used medications and vaccines. The company is currently working on new drugs to treat cancer, diabetes and hepatitis C, as well as a vaccine for Ebola.
Merck stock sold off sharply late last year after third-quarter revenues missed estimates and the company pulled a European drug application. MRK eventually found support, but long-term, the stock is stuck in a trading range dating back to the end of its last uptrend in 2014. Sales are earnings growth estimates are solid though, so if MRK can get its technical momentum back, the stock could become a good portfolio candidate again soon.
10. Cisco Systems (CSCO)
Dividend Yield 3.1%
Networking equipment leader Cisco was founded in 1984 and added to the Dow in 2009. For a while in 2000, Cisco was the most valuable company in the world, with a market cap of over $500 billion. Today Cisco is a little smaller, and has gone through multiple restructurings in an attempt to keep up with the rise of cloud computing.
As a tech company, Cisco doesn’t offer as much stability as most of the other Dow components. EPS grow in some years and shrink in others. Revenues have been wobbly in recent years but are expect to grow this year and next.
Dividend growth has been more reliable. Cisco started paying dividends in 2011, and has increased the dividend every year since. The company’s dividend payout ratio has climbed over 50% recently but is still far from dangerous territory.
And earnings growth expectations have recently moved up. EPS are expected to rise by 8% this year and 12% next year. Cisco stock has spent the last four months consolidating, but doesn’t show too much selling pressure. Now could be a profitable time to be a Cisco investor.
My Favorite Highest Paying Dividend Stocks
So which of these highest paying dividend stocks would I buy today? Cisco (CSCO), Chevron (CVX) and Exxon Mobil (XOM) all seem like they have potential right now, although all three come with fairly high risk.
If you’re looking for more of a sure thing—think high quality stocks with reliable earnings growth and technical strength—you should try out my premium advisory, Cabot Dividend Investor, where I recommend my favorite new dividend stock every month. Click here to try it out now.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More