The 10 highest paying dividend stocks in the Dow Jones Industrial all yield more than 2.6%. But which of them would I buy today?
Nearly all 30 stocks in the Dow Jones Industrial Average pay dividends, but not all of them are particularly high dividend yields. Nine 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. With that in mind, what are the highest paying dividend stocks in the Dow today?
Highest Paying Dividend Stocks in the Dow
- Chevron (CVX)
- IBM Corp (IBM)
- Verizon (VZ)
- Dow (DOW)
- Walgreens Boots Alliance (WBA)
- Merck (MRK)
- Amgen (AMGN)
- 3M (MMM)
- Coca Cola (KO)
- Intel (INTC)
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. For some of them, however, their 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.
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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.
1. Chevron (CVX)
Dividend Yield 5.5%
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 early 2020, but bottomed last spring after losing 55% of its value during the pandemic crash.
Chevron has a steady record of dividend payments despite crises in the energy sector, most recently increasing its dividend 4% earlier this spring. Although the stock’s dividend payout ratio has popped over 100% several times, CVX is currently on the Dividend Aristocrats list.
Revenues are expected to increase 47% this year, with analysts estimating 5% year over year growth in 2022. Per-share earnings are expected to increase dramatically this year, to 5.37, and grow to 6.34 in 2022. Like its peer Exxon, the stock is choppy at times and has a tendency to surge and crash with oil prices. But with crude prices on the rebound, CVX is a worthwhile choice for investors who want some exposure to the energy sector.
2. IBM Corp. (IBM)
Dividend Yield 4.7%
Big Blue has been a laggard performer among Dow 30 stocks in recent years and fell 40% from its high to low during the early 2020 selling panic, to 90, before recovering to just under the 140 level (where it sits today). IBM is still under its 2020 high of 160, however, and well below its record high of 215.
IBM’s revenues have been declining since peaking at $107 billion in 2011. 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, with the latest one rising to $1.64 per share.
Things could be starting to turn around for IBM, however, as revenues are expected to continue growing (slightly) this year and next year after several years of shrinkage, while per-share earnings are expected to rise 23% this year and 11% next near.
3. Verizon (VZ)
Dividend Yield 4.6%
Telecoms typically pay high dividends, and the highest dividend yield in the Dow almost always belongs to Verizon. Verizon is one of the top five U.S. wireless carriers, but faces stiff competition from number-one AT&T (T) and its smaller (but recently merged) competitors Sprint (S) and T-Mobile (TMUS). All four telecoms have spent the recent 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 initially peaked in 2015, and it saw lower revenues in 2016-2017. But top-line growth swung higher in 2018, and after the 2020 debacle, the top line is once again in the ascendant (see chart below).
For its part, Verizon is investing heavily in forward-looking ventures, including the “internet of things” and digital content. While economic uncertainty persists going forward, it should be kept in mind that VZ has a tendency to outperform other Dow 30 components in periods of economic weakness, thanks largely to its healthy subscription-based business. In the Great Recession of 2008-2009, for instance, VZ experienced a price drop of only 33% compared with a far more devastating 50% drop for the broad market.
More recently, VZ’s price declined by only 20% during last year’s pandemic-led crash, which is a far less decline than that suffered by most of its Dow peers. The yield is also safe—VZ’s dividend payout ratio is 51%—and that’s one reason to own the stock right now.
4. Dow Inc. (DOW)
Dividend Yield 4.4%
Dow is a commodity chemical producer which many investors consider to be both a “contrarian cyclical” play as well having short-cycle exposure. In the face of the strong manufacturing rebound in China and other countries, some analysts have already upgraded DOW based on its operating leverage and excellent management. While DOW’s stock price fell 58% during the early 2020 market rout, its long-term history of maintaining a healthy dividend was left intact and makes it a worthwhile consideration for income-oriented investors.
Revenues for DOW are expected to increase 37% year over year in 2021, and analysts foresee a whopping 411% increase in per share earnings this year (due in part to the easy comparison) as global demand for commodities chemicals increases as economies around the world reopen.
5. Walgreens Boots Alliance (WBA)
Dividend Yield 3.4%
Not long ago, Goldman Sachs analysts classified WBA as a “dividend all-star,” and for good reason. The second-largest pharmacy store chain in the U.S., WBA’s dividend yield has risen at a compound annual rate of nearly 7% since 2015, and it has a multi-decade record of continual dividend increases.
While the company’s earnings have been flat in recent years, revenue has tended to grow in the low single-digits in recent years. Moreover, its earnings tend to hold up well during economic downturns (as was seen during last year’s COVID-19 pandemic).
For 2021, WBA is one of the few Dow 30 stocks expected to see a decrease in revenues, however. Analysts estimate revenues this year of $132 billion which, if realized, would be a 5% decrease from a year ago. And while the firm’s EPS is expected to remain flat this year, analysts see per share earnings rebounding 9% in 2022 with revenue increasing 4%. All told, given WBA’s tendency to profit in a climate of slow economic growth, investors would do well to give it a closer look.
6. Merck (MRK)
Dividend Yield 3.4%
Merck is one of the biggest and oldest of the publicly-traded pharmaceutical companies, boasting blockbuster diabetes and anti-cancer treatments—including the second-largest drug by sales on the market, Keytruda. (Many analysts believe that Keytruda will grab the number one spot by 2023.)
And while its revenues can be volatile at times, the company has managed to maintain a steadily rising dividend in recent years. Merck’s drug portfolio brought in $48 billion in revenue in 2020, and its cash flow has a solid long-term track record.
Looking ahead, Merck is expected to obtain a tripling of new indications over the next eight years in its oncology portfolio, with over 50 anticipated approvals in the next four years and a potential total of 90 approvals by 2028.
7. Amgen (AMGN)
Dividend Yield 3.2%
Amgen is one of the world’s largest independent biotechnology firms, developing therapies for patients suffering from a variety of serious illnesses based on advanced human genetics tools.
Despite less-than-stellar top- and bottom-line growth anticipated for 2021, the company has managed to maintain a steadily rising dividend in recent years. Amgen’s drug portfolio brought in $25 billion in revenue in 2020, and its revenues have a solid long-term track record.
Looking ahead, analysts see Amgen’s bottom line dipping 1% for full-year 2021, followed by two years of around 10% per-share earnings growth.
8. 3M (MMM)
Dividend Yield 3%
Long-time Dow 30 component 3M produces more than 60,000 products under several brands and across numerous industry categories. Of note, 3M is one of the longest-reigning dividend aristocrats after 63 years of dividend growth.
The company is known for having superb free cash flow generation, with analyst predicting $19 billion in free cash flow in the next three years. It also has an attractive valuation when compared to many of its Dow 30 peers.
For 2021, the consensus expects 3M’s revenue to grow 10% while per-share-earnings increase 15%. Income-oriented investors would do well to give this stock a closer look.
9. The Coca-Cola Company (KO)
Dividend Yield 3%
Coca-Cola is a blue-chip stock, a dividend aristocrat, and a household name. But revenues have been in an overall downward trend 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, expanding Diet Coke and Coke Zero in flavors like Orange Vanilla and Blueberry Acai, and launching Coke with coffee and Coke Energy in select international markets. These efforts are slowly translating into moderately stronger sales, and KO’s revenues appear to be bottoming out after several years of decline.
The good news for income investors is that even after KO’s 40% stock price increase since last year’s pandemic crash low, the stock still offers a healthy 3% dividend yield. Of course, KO’s dividend payout ratio is also high, and is currently 88%. Coca-Cola seems unlikely to let their Dividend Aristocrat status lapse, though, and if analysts are correct in their predictions that both revenues and earnings per share will increase this year (around 15% each) and in the next few years to come, KO will likely regain its status as a blue-chip worth holding for the long term.
10. Intel (INTC)
Dividend Yield 2.6%
Rounding out the top 10 list is Intel with a lower, but still respectable, dividend yield of 2.6%. One of the world’s largest chip makers by revenue, the company has also assumed a leadership position in innovation for cloud computing, data center, Internet of Things (IoT) and PC solutions, allowing it to emerge as a top choice for tech-oriented investors in the wake of the post-pandemic work from home paradigm.
But what impresses most analysts about Intel these days is the company’s eye-opening free cash flow (which is used to pay dividends). Even in last year’s tough economic climate, the firm was a cash-generating machine, and its free cash flow yield is currently around 8%.
All told, Intel should be regarded as a strong tech sector play for yield-conscious investors.
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*This post has been updated from an original version, published in 2018.