These 10 Dow Components Currently Yield 3% or More

by: Zvi Bar
Many investors have been craving higher yielding investments lately, and for various reasons. The interest rate most banks now offer for cash and CDs is next to nothing, as are short term U.S. Treasuries. Intermediate Treasuries aren’t much better and according to the Department of the Treasury’s daily yield curve rates, you have to buy a 10-year Treasury security to receive a yield above 3%, though the 7-year notes may soon go above 3%.
Worse yet, U.S. debt is being downgraded as I type. As a result, many investors are avoiding the bond markets, until we finally enter a higher rate environment, avoiding potential depreciation, and looking for stable equities that can fill the fixed income portion of their portfolio.
There are literally thousands dividend paying equities and funds (of the mutual, closed-end and exchange traded varietals) that pay a dividend. At least a few must be terrible investments (such as those funds that have fees at or around their yield) and do keep in mind that dividends get taxed, so it isn’t necessarily the best use of corporate income that has already been taxed at the corporate level. Nonetheless, several of the oldest, most well-recognized and respected organizations are paying sizable dividends.

The S&P 500 (NYSEARCA:SPY) average dividend is currently approximately 1.75%, while the Dow Jones Industrial Average (NYSEARCA:DIA) is yielding about 2.4%. You would have to go to at least a 5-year Treasury note to obtain that kind of yield.

Still, and especially if obtaining some immediate income is important to you, there are 10 stocks within the 30 DJIA components that yield 3% or more. The best thing about these 10 companies is that you have heard of all of them, know how they make their money, and will find it easy to obtain news and information that is relevant to their likelihood of future success.
Additionally, they are all large, highly liquid investments. You may also find that the 10 combine to make a reasonably diverse, yet conservative portfolio, with a strong domestic, international and emerging market profile. No, this is not a perfect, complete stock portfolio. These 10 names are noticeably absent of any financial, energy or commodity names, all of which can be good core holdings (and many energy and financial companies offer yields as compelling, or even more-so).
The following are the 10 DJIA components that currently yield 3% or more, listed in alphabetical order, with some accompanying facts.
  1. AT&T Inc. (NYSE:T)
    • Dividend Yield: 5.6%
    • Industry/Sector: Telecom/Technology
    • P/E: 9.06; Forward P/E: 10.8
    • 10 Year Dividend Growth: 65.68% ($1.02 to $1.69)
  1. E.I. DuPont de Nemours & Co. (NYSE:DD)
    • Dividend Yield: 3.0%
    • Industry/Sector: Chemicals/Conglomerates
    • P/E: 16.4; Forward P/E: 12.7
    • 10 Year Dividend Growth: 17.14% ($1.40 to $1.64)
  1. Intel Corporation (NASDAQ:INTC)
    • Dividend Yield: 3.7%
    • Industry/Sector: Semiconductor/Technology
    • P/E: 9.76; Forward P/E: 9.1
    • 10 Year Dividend Growth: 687.5% ($0.08 to $0.63)
  1. Johnson & Johnson (NYSE:JNJ)
    • Dividend Yield: 3.6%
    • Industry/Sector: Drugs & Home Products/Healthcare
    • P/E: 12.64; Forward P/E: 11.4
    • 10 Year Dividend Growth: 201.43% ($0.70 to $2.11)
  1. Kraft Foods Inc. (KFT)
    • Dividend Yield: 3.5%
    • Industry/Sector: Food/Consumer Products
    • P/E: 13.86; Forward P/E: 12.3
    • 10 Year Dividend Growth: 346.15% ($0.26 to $1.16)
  1. McDonald's Corp. (NYSE:MCD)
    • Dividend Yield: 3.2%
    • Industry/Sector: Restaurants/Consumer Services
    • P/E: 16.81; Forward P/E: 13.5
    • 10 Year Dividend Growth: 882.6% ($0.23 to $2.26)
  1. Merck & Co. Inc. (NYSE:MRK)
    • Dividend Yield: 4.4%
    • Industry/Sector: Drugs/Healthcare
    • P/E: 120.5; Forward P/E: 8.4
    • 10 Year Dividend Growth: 10.14% ($1.38 to $1.52)
  1. Pfizer, Inc. (NYSE:PFE)
    • Dividend Yield: 3.9%
    • Industry/Sector: Drugs/Healthcare
    • P/E: 19.94; Forward P/E: 8.7
    • 10 Year Dividend Growth: 63.63% ($0.44 to $0.72)
  1. Procter & Gamble Co. (NYSE:PG)
    • Dividend Yield: 3.3%
    • Industry/Sector: Home Goods/Consumer Products
    • P/E: 17.44; Forward P/E: 13.9
    • 10 Year Dividend Growth: 157.14% ($0.70 to $1.80)
  1. Verizon Communications Inc. (NYSE:VZ)
    • Dividend Yield: 5.2%
    • Industry/Sector: Telecom/Technology
    • P/E: 41.46; Forward P/E: 14.0
    • 10 Year Dividend Growth: 25.32% ($1.54 to $1.93)
As substitute or compliment to the fixed income portion of a portfolio, if equally divided amongst these 10 stocks, it would currently yield 3.94%, which is well above the present 10-year treasury yield. And while past performance is no indication of future performance, these 10 stocks have a combined average of 245.67% dividend growth since 2001.
Should they grow their dividends by half as much over the next 10 years and their stock prices stay the same, they will then yield 9.39%. Some, such as DD, MRK and PFE, even cut their dividends at some point within the past decade, yet still ended up returning to and then eventually surpassing their prior pay-outs. Furthermore, the group currently sports a forward P/E of approximately 11.5%, which is below the market’s average.
These 10 names showcase that it is possible to build a conservative portfolio with a yield that is over double the S&P 500’s and also higher than a 10-year Treasury, while still providing the opportunity for dividend growth, capital appreciation and global exposure. And I didn’t even look beyond the Dow 30.

Disclosure: I am long INTC, KFT. I have family members that are long T, JNJ, KFT, PFE and VZ.

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