The Best Place to Go Dividend Fishing

Every fisherman likes to think they have his own special spot that no one knows about to reel in the biggest catch. But if you're casting a line for that that sterling stock with a high yield, conservative payout ratio, and steady growth, sometimes it makes more sense to stick with the busiest, most proven pond. I'm talking about The Dow Jones Industrials Average (INDEX: ^DJI) .

The index is composed of 30 blue-chip stocks, a category defined by their financial soundness. More than half of the companies have been registered on the Dow for two decades or more, eight of the companies are dividend aristocrats, and its 2.5% yield is higher than the S&P 500 (INDEX: ^GSPC) , the Nasdaq 100 (INDEX: ^NDX) , and the Russell 2000 (INDEX: ^RUT) .

Here is a look at the average dividend yield of each index:



Dow Jones Industrials Average2.52%
S&P 5002.02%
Nasdaq 1000.94%
Russell 20001.40%

Hook, line, and returns
So when you're rowing around on the Dow, which component is the big catch, that one you tell all your friends about and mount on the wall?

I'm going to have to go with he king of burger slingers, McDonald's (NYS: MCD) . The Golden Arches could just as easily represent all the smiles of consumers and shareholders alike. The company has been paying dividends for an amazing 25 years, maintains a sub-50% payout ratio, and pays out a market-topping 2.8%. An investment in McDonald's in 1980 would have returned 8,000% to investors today.

Fellow Fool Andrew Tonner agrees and has named McDonald's "The Greatest Dividend Stock on the Dow." That's a big title, but I agree with him. McDonald's was the top-performing Dow stock of 2011, but it was no one-time performance:


McDonald's Corporation Stock Chart by YCharts

The other trophies
Of course The Dow isn't the only place to find great dividends. If you think the 30-component index is a little limited, or you're looking for something that isn't as well known as McDonald's, then I invite you to learn more in our report, "11 Rock-Solid Dividend Stocks." The report outlines some of the best dividend stocks out there. The best part is that it's 100% free today. Learn more, enjoy, and Fool on!

At the time this article was published Austin Smith owns shares of McDonald's.Motley Fool newsletter serviceshave recommended buying shares of McDonald's. 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.

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

Read Full Story