The Safest and Best Dividends on the Dow

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Dividend stocks have realized a resurgence of investor interest the past few years, and with good reason. With the markets continuing their unpredictable and volatile swings, who wouldn't want a little extra guaranteed return?

Evidence continues to show that dividend-paying equities are among the best wealth-building vehicles out there:

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Of course, that doesn't mean we should all run out and buy the first high-yielding dividend stock we can. Since a dividend is only as good as the company that backs it, we have to do a little more digging first.

Since dividends are a patient man's game, we first need to start with nice, stable companies. What better place to look than the Dow Jones Industrial Average (INDEX: ^DJI) ? The index is composed of 30 blue-chip stocks, a category defined by their financial soundness. And since more than half of the companies have been registered on the Dow for two decades or more, you can sleep soundly knowing they're here to stay.

To test each company's dividend safety and quality, I looked at yield, payout ratio, coverage ratio, and five-year dividend growth. I wasn't interested in companies with a yield less than the Dow as an average, or whose payout ratio was greater than 50%. That narrowed the list down to only the five following 

companies.

Company Name

Payout 
Ratio %

Dividend Yield

5-Year 
Dividend CAGR

Total Debt/Equity

Interest 
Coverage Ratio

General Electric (NYS: GE)

41.1

3.61

(10.3)

385.4

21.7

DuPont

44.0

3.39

2.07

105.4

10.3

Intel (NAS: INTC)

30.8

3.34

13.9

4.59

NM

Procter & Gamble (NYS: PG)

49.8

3.19

11.3

47.1

22.3

Chevron (NYS: CVX)

22.1

3.05

9.11

10.8

NM

Source: S&P Capital IQ. NM= not meaningful.

General Electric has had to reduce its dividend to $0.17 per share, down from $0.31 in 2008. For me, that knocks GE out of contention for safest dividend here. DuPont has more aggressively financed growth than three of the companies here and has a relatively high payout ratio. Procter & Gamble almost fails my 50% payout ratio test, so that's a black mark. While all are great and stable companies, I think Intel and Chevron have better, safer dividends.

I see Intel has done a great job raising its dividend at an average of almost 14% per year for the past five years. Yet it still pays out only 31% of its earnings in dividends. I also see Chevron raising its dividend an impressive 9.1% per year on average, yet it maintains the lowest payout ratio of the bunch.

And not only has Chevron maintained the tricky combination of a high yield and a conservative payout ratio, but it also sports the lowest debt-to-equity ratio. That's great news, since the less a company worries about paying its interest, the more it can worry about paying us shareholders.

I tip my hat to Intel and Chevron as the safest and best dividends on the Dow.

Even better dividends?
While the Dow does house some great dividends, with only 30 components it's limited in its offering. If you're looking for even more dividend picks, I invite you to read The Motley Fool's special free report: "Secure Your Future With 11 Rock-Solid Dividend Stocks." Our analysts have outlined their favorite dividend stocks to reward shareholders for years to come. The report is free today, but it won't be forever, so access your copy now.

At the time this article was published Austin Smith owns no shares of the companies mentioned here. The Motley Fool owns shares of Intel. Motley Fool newsletter serviceshave recommended buying shares of Intel, Procter & Gamble, and Chevron and creating a bull call spread position in Intel. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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