5 Dow Stocks with the Safest Dividends

As February ends, we can breathe a sigh of relief as another painful month comes to a close. This month saw the Dow lose over 900 points or 11.7%. The falling stock prices of even the blue chip companies of the Dow Jones index has produced some incredibly high dividend yields. Many of these dividend payments are almost sure to be cut, and many already have (General Motors (GM), JP Morgan (JPM), General Electric (GE)).

So which companies have the safest dividends? For the sake of this analysis, we are only going to consider stocks with dividend yields of 3% or greater. We assume that dividend investors are looking to capitalize on the higher dividend yields and as such would not be as interested in safe, but lower-yielding dividend stocks.

Coca-Cola (KO) (4.0% yield)

With projected 2009 earnings of $3.13 per share, the company’s $1.64 annual dividend seems very reasonable. Even the Obama White House is lending their support to Coke these days, announcing their preference of Coke over Pepsi.

United Technologies (UTX) (3.9% yield)

While earnings will undoubtedly be down this year, the company is only expected to pay out roughly a third of its projected earnings for the year. So investors getting into the stock now can take advantage of the stock’s 24% slide since the beginning of the year and benefit from the solid dividend yield.

McDonald's (MCD) (4.4% yield)

Many people have been surprised at McDonald’s recent slide since the beginning of the year. The stock is considered a great value play and now offers investors a solid dividend yield of over 4%. Consumers are going to continue to flock to McDonald’s in this environment and we think it would be highly unlikely for the company to reduce its dividend.

3M (MMM) (4.5% yield)

Earlier this month, 3M voted to increase its quarterly dividend payment by 2% to $.51 per share. While sales and profits are expected to decline in 2009, the company’s dividend payout ratio still remains at a comfortable 50%. So the economy would need to significantly worsen before the company would need to cut its dividend payments.

Merck (MRK) (6.3% yield)

Merck is one of the Dow’s dividend stocks that operates in the reasonably immune healthcare sector. While the stock is down 20% since the beginning of the year, the company’s relative performance remains strong.

While the only thing certain in this economic environment seems to be uncertainty, these five dividend stocks appear to be in a strong position to continue providing dividend investors with consistent yields in 2009.

Comments

[donzelion:]

One might be more cautious about thinking of "dividends" as "safe." An investor who needs "safe income" should not buy stocks at all: no matter how many times they've paid out dividends reliable, stocks will never be "safe."

Re Merck: "Relative outperformance" says no more about future dividends than today's snowstorm suggests an end of global warming.

Re UTX: What evidence shows UTX is "safer" that TXT? Don't even bother making an argument; hindsight makes geniuses of us all. Point is, one needs some stronger basis other than "they have different products" to believe in any claims of "safety."

Re McDonald's: How will McD's be affected if the REITS are getting squeezed, if anchor retailers are closing, and if consumers are driving less? You'd be surprised at the extent to which "financial services" rendered by McDs to their franchises keeps people afloat (or rather, keeps costs of business down...)

Mar 03 05:53 AM

[y3115y:]

For 7% divident from Merck in beginning of the year, I bought the stock, have not gotten one divident payment yet, but have lost 20% of capital.

I would suggest to buy one every few months, cost average in.

Mar 03 01:05 PM

[mander30andy:]

Andy was struck by the sheer flagrancy of actions taken by Merck with no apparent concern for their own vaccinated patients. He immediately did a market scan on the company. The market capitalization, or how much the company is worth is $60.49 Billion with a Debt/Equity rating not even rated as Andy guesstimated that ongoing legal actions in the Debt Market made it impossible to number. Andy could only conclude that the company did not feel enough legitimacy to even provide conclusive evidence of safety in their investments. Andy investigated further with the Current Ratio where Current Assets are divided by Current Liabilities and found the same results with, ‘not available,’ results. He concluded that not much faith was placed in the short-term business of the company.

Mar 03 01:40 PM

[mander30andy:]

Andy was struck by the sheer flagrancy of actions taken by Merck with no apparent concern for their own vaccinated patients(what about Vioxx & HEP A vaccine & more). He immediately did a market scan on the company. The market capitalization, or how much the company is worth is $60.49 Billion with a Debt/Equity rating not even rated as Andy guesstimated that ongoing legal actions in the Debt Market made it impossible to number. Andy could only conclude that the company did not feel enough legitimacy to even provide conclusive evidence of safety in their investments. Andy investigated further with the Current Ratio where Current Assets are divided by Current Liabilities and found the same results with, ‘not available,’ results. He concluded that not much faith was placed in the short-term business of the company.

Mar 03 01:43 PM

[Marcap:]

"One might be more cautious about thinking of "dividends" as "safe." An investor who needs "safe income" should not buy stocks at all: no matter how many times they've paid out dividends reliable, stocks will never be "safe.""

I agree. Prudent investors should only look at dividends as being that little "extra" when making their decision to buy a stock, especially these days when dividends can be cut or reduced at any time, by even the most stable of companies. But to suggest that there is any such thing as a "safe" dividend is not accurate in my opinion. After all, of what value is there in buying a stock based on a 4% dividend when if the stock price drops 20%? Sure, the dividend may cut that loss from 20% to 16%. But where I went to school, the idea of investing in stocks was to make money, not simply find stocks where one would lose less. Of course I'm sure there are many these days who would love to just get back to even...let alone actually make a profit. Nonetheless, there will no doubt be much brighter days ahead for all of us. The questions however are... How far ahead? and... What will happen in the interim? Now if I had the answers to those 2 questions, it is rather unlikely that I would be here now, writing this comment. :)

Mar 03 04:41 PM

[auto44:]

Dividend paying stocks are great if you buy them at the bottom or on the way up. But if the stack drops 40-60%, what good is the dividend?

Mar 03 09:24 PM

[Marcap:]

So very true! Unfortunately these days, even the most stable of companies may start cutting back on their dividends just to preserve cash for what ever reason. And then of course there are a few companies out there which take on additional debt just to be able to continue paying their dividends. Frankly, I've never understood management's logic behind that one. After all, if they cut their dividends, their shares will likely decline in price, but then so too will they likely decline in price with the additional debt. And that's a double-edged sword if I've ever seen one.

On Mar 03 09:24 PM auto44 wrote:

> Dividend paying stocks are great if you buy them at the bottom or
> on the way up. But if the stack drops 40-60%, what good is the
> dividend?

Mar 04 01:53 AM

[Dividend Gr...:]

Most of the stocks above except BMY have stable and reliable cash flows. Their products are somewhat better recession proof in comparison to others.

Mar 04 03:16 PM

[wavelength:]

I particularly like KO, MCD and MRK, but do see some difficulties with the overall argument. As the other posters have already pointed out - a 4% dividend does not make up for a 20% dive in the share price. Doesn't this mean that the only way these plays make sense is if you can correctly time the bottom? This makes me ask: Won't the bottom of the market be followed by significant USD depreciation, and high interest rates? If so, then at that time, and in preparation for that time, are better things to do with one's money.

Mar 05 09:34 AM

[RFM:]

If you want safe yield then you're likely better off buying high quality (well-covered) corporate bonds in today's environment. You give up capital appreciation potential, but also have reasonable protection against loss if you buy well. Any analysis of return on an equity investment needs to consider both the dividend yield and reasonable prospects for increases (or decreases) in the value of the shares. Looking only at dividend yield can lead to dangerous conclusions about the "safety" of an investment.

Mar 05 11:51 AM

[JOE TODD:]

Baby Boomers are having more health problems "stomach problems" diabeties etc. They are going to stop or cut way back on drinking colas are switching to juices,flavored waters etc I used to be a "Pepsi Man"

Mar 06 08:47 AM