The Biggest Dividends on the Dow

Before you go, we thought you'd like these...
Before you go close icon

Dividend stocks are great because your cash outlay (stock purchase) turns into a cash inflow (dividend) within a relatively short period of time. The Dow Jones Industrial Average (INDEX: ^DJI) is a great place to look for dividend-paying stocks. All of the companies in the index pay dividends, while some have rewarded shareholders substantially by increasing their cash payments year after year. To get you started, I've ranked the top qq based on their forward dividend yields and provided some insight into their particular industries.

Make the phone company pay you
AT&T
and Verizon offer the highest yields in the Dow: 5.6% and 5.1%, respectively. Both businesses are capital intensive -- it isn't cheap to build a network -- but once the assets are in place, both businesses benefit from recurring revenues. The wireline business is declining, but that is offset by growth in wireless communications, in which AT&T and Verizon are particularly strong. Both have increased annual dividends significantly over the past five years -- AT&T (12%) and Verizon (10%).

Profit on growing health-care expenses
Merck
, Pfizer, and Johnson & Johnson offer respective yields of 4.4%, 3.9%, and 3.6%. All three face regulatory risks associated with the Patient Protection and Affordable Care Act (PPACA), but in my opinion, that risk is already priced into the stocks. If I had to pick one, I'd choose scandal-plagued Johnson & Johnson. Although it offers the lowest yield, it has been the most persistent in increasing its dividend -- 9% annually over the past five years.


It's not too late to profit from Thomas Edison
Too-big-to-fail General Electric (NYS: GE) , which yields 3.5%, was founded in 1892 by Thomas Edison. The company's stock has struggled over the past 10 years -- returning -2% annually. But the company has strong businesses in aviation, energy, and health care. Based on its diversified business portfolio and its ability to develop expert managers, I'd expect the company to pay dividends for years to come.

Invest alongside Warren Buffett
Warren Buffett isn't necessarily a dividend investor, though he certainly likes to cash those dividend checks. He primarily invests in high-quality businesses with a sustainable competitive advantage. If he invests in a stock, it's worth consideration. Enter Procter & Gamble (NYS: PG) , which yields 3.4%. It has a history of innovation and great brands, and Warren Buffett owns it. Buffett also owns Kraft Foods, which yields 3%, and Intel, which yields 3.1%.

Buy a "super major" oil stock
California-based Chevron is the highest-yielding (3.1%) energy stock in the Dow, and it's grown its dividend by 9% annually over the past five years. It's also the cheapest stock in the Dow based on price-to-earnings. If you're looking to generate income and profit on rising energy prices, Chevron is worth consideration.

The future is plastics
DuPont
(NYS: DD) , founded in 1802, is one of the world's largest chemical companies. It yields 3.1%. The chemicals business is highly cyclical, but DuPont is clearly on the upswing -- its earnings have grown 19% annually over the past three years.

Dow stocks and beyond
If you're constructing a dividend portfolio, I'd take a close look at the 10 stocks above. But I also recommend taking a look at one of our newest special free reports: "Secure Your Future With 9 Rock-Solid Dividend Stocks." It details a group of dividend stocks, including familiar blue chips and some you may not have heard of, that you can count on to pay you back for decades to come. Get your free copy.

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

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners