Ranking The DOW Dividends

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Includes: AAPL, AXP, BA, CAT, CSCO, CVX, DD, DIS, GE, GS, HD, IBM, INTC, JNJ, JPM, KO, MCD, MMM, MRK, MSFT, NKE, PFE, PG, TRV, UNH, UTX, V, VZ, WMT, XOM
by: Stan Stafford
Summary

There are several important factors to consider when looking at the attractiveness of a stock's dividend.

In this article, I will be ranking the dividends of the DOW 30 based on dividend yield and growth, payout ratio, stock price appreciation, and free cash flow yield.

The top ranked stocks include IBM, TRV, UNH, CAT, and AAPL.

The bottom ranked stocks include MRK, JNJ, PFE, VZ, DD, and GE.

Overview

In this article, I will be taking a look at each of the thirty DOW components and reviewing/ranking them based on their dividends. When considering a stock's dividend, I like to look at more than just yield. I also like to take into consideration dividend growth, the ability of a company to continue paying/increasing their dividends, the overall stability of a company, and the valuation of the associated stock.

To determine the rankings, I will be looking at the following measures:

  • Dividend Yield
  • Dividend Growth (over the past 10 years)
  • Payout Ratio (trailing twelve months)
  • Stock Price Return (over the past 10 years)
  • Free Cash Flow Yield (trailing twelve months)

For each of these measures, I will rank each stock from highest to lowest. The top stock will receive a score of 30 per category, while the lowest stock will receive a score of 1. For stocks that have the same value, the score will be split (for instance, if stocks ranked 14 and 15 have a dividend yield of 3.2, then each stock will receive a score of 14.5).

In addition to these scores, I will also be adding the fundamental score and value score that is calculated by YCharts to the overall score total of each individual stock. More information regarding the fundamental score and value score can be found here and here.

The Rankings

Dividend Yield

Stock Yield
Verizon (NYSE:VZ) 4.53
Chevron (NYSE:CVX) 4.22
McDonalds (NYSE:MCD) 3.49
Exxon Mobil (NYSE:XOM) 3.32
Procter & Gamble (NYSE:PG) 3.32
General Electric (NYSE:GE) 3.3
Caterpillar (NYSE:CAT) 3.28
Pfizer (NYSE:PFE) 3.15
Coca-Cola (NYSE:KO) 3.07
Merck (NYSE:MRK) 2.99
Intel (NASDAQ:INTC) 2.88
Johnson & Johnson (NYSE:JNJ) 2.87
IBM (NYSE:IBM) 2.73
Du Pont (NYSE:DD) 2.73
Cisco (NASDAQ:CSCO) 2.72
Walmart (NYSE:WMT) 2.62
JPMorgan Chase (NYSE:JPM) 2.41
3M (NYSE:MMM) 2.37
Boeing (NYSE:BA) 2.32
Travelers Companies (NYSE:TRV) 2.2
United Technologies (NYSE:UTX) 2.1
Microsoft (NASDAQ:MSFT) 1.94
Home Depot (NYSE:HD) 1.9
Apple (NASDAQ:AAPL) 1.49
American Express (NYSE:AXP) 1.31
UnitedHealth (NYSE:UNH) 1.28
Goldman Sachs (NYSE:GS) 1.15
Nike (NYSE:NKE) 1.06
Disney (NYSE:DIS) 1.04
Visa (NYSE:V) 0.67

Looking at this table, you can see that Verizon and Chevron have the highest yields out of the group and are the only two stocks with yields over 4%, while Visa is the lone stock out of the group with a yield of less than 1%.

You can also see that the majority of the thirty stocks have yields between 2.00% and 3.50%.

Dividend Growth

Stock Dividend Growth
UNH 1570
IBM 550
HD 490
V 357.1
NKE 348
DIS 334.1
MSFT 287.5
BA 264
CSCO 250
WMT 226.7
INTC 200
UTX 190.9
CAT 180
AXP 176
TRV 165.2
GS 160
XOM 151.7
MMM 144
CVX 137.8
PG 136.8
KO 135.7
JNJ 127.3
VZ 51.45
PFE 47.37
AAPL 37.36
DD 32.43
JPM 29.41
MCD 26.87
MRK 18.42
GE 4.55

Looking at this table, you can see that several stocks have seen impressive dividend growth over the past ten years with the majority of them averaging better than 10% annual increases. You can also see that a few of the stocks, General Electric in particular, have seen rather stagnant dividend growth during this time.

Stocks with low dividend growth like this can be poor long term investment options even if they offer substantial yields. But it is also important to look at the yearly growth of these stocks as some of them have not been paying dividends for a full ten years.

Payout Ratio

Stock Payout Ratio
GS 12.10%
AXP 18.10%
V 19.70%
TRV 21.20%
AAPL 23.30%
DIS 24.70%
UNH 24.80%
IBM 28.10%
JPM 29.30%
NKE 29.70%
UTX 34%
WMT 38.50%
BA 38.70%
INTC 38.90%
HD 40.60%
XOM 41.40%
CAT 43.30%
CSCO 45.20%
MRK 46.30%
CVX 46.80%
MMM 47.60%
MSFT 49%
JNJ 50.20%
DD 53.50%
PG 68.50%
PFE 73.50%
MCD 74.50%
KO 78.60%
VZ 91.50%
GE 741.50%

Looking at this table, you can see that the majority of stocks have very sustainable payout ratios that provide plenty of room for future dividend increases. There are only a handful of stocks that appear to have any reason for concern from this point of view.

Stock Price Return

Stock Price Appreciation
AAPL 2270%
NKE 387.10%
V 383%
DIS 311.60%
MCD 215.70%
HD 180.70%
TRV 161.10%
UNH 130.70%
IBM 122.10%
UTX 120.60%
BA 118.40%
GS 114.80%
MMM 108.50%
JPM 86.67%
MRK 85.45%
CVX 84.20%
KO 83.59%
MSFT 82.66%
CAT 78.81%
AXP 66.21%
WMT 56.62%
VZ 52.61%
DD 51.11%
JNJ 49.41%
CSCO 47.58%
XOM 47.40%
PG 41.43%
PFE 22.50%
INTC 18.29%
GE -25.70%

While stock price appreciation isn't a necessity when it comes to dividend investing, it is something that investors should keep in mind. It is preferable to hold investments so that stock price appreciation or deflation does not factor into the equation, but that is not always realistic.

Also, it makes sense to look at investments that offer both stock price appreciation potential plus strong dividends as opposed to an investment that only offers one.

Looking at the table above, you can see that many stocks have enjoyed much success over the past ten years, while General Electric is the only stock to have decreased in price during this time. In addition, PFE and INTC have seen minimal growth in their stock prices during this stretch, which should be concerning considering the overall trend of the market.

Free Cash Flow Yield

Stock Yield
JPM 14.67
AXP 10.43
TRV 9.5
AAPL 8.37
IBM 7.72
CAT 7.45
CSCO 7.3
INTC 7.29
MSFT 6.81
UNH 6.45
WMT 6.18
PFE 6
GE 5.61
BA 5.38
HD 5.14
PG 5.06
MMM 4.93
JNJ 4.87
KO 4.8
UTX 4.7
MCD 4.37
NKE 4.11
DIS 3.65
VZ 3.63
V 3.5
MRK 3.17
DD 2.73
GS 2.56
XOM 1.55
CVX -4.74

I like to use this measure to help gauge the overall value of a company in addition to other metrics such as PE ratios. Usually I try to steer clear of investments with yields under 3.50%, but this will vary based on other factors related to specific stocks and their industry sectors.

Fundamental Score

Each of the thirty DOW components had a fundamental score of 8 or higher with the exception of two stocks:

  • General Electric - with a fundamental score of 7
  • Goldman Sachs - with a fundamental score of 5

Value Score

The value scores were a bit more spread out compared with the fundamental scores.

The stocks with a value score of 10 include: CVX, XOM

The stocks with a value score of 9 include: INTC, TRC, CAT, JPM

The stocks with a value score of 8 include: MRK, JNJ, IBM, WMT, CSCO, GS

The stocks with a value score of 7 include: BA, UTX, MSFT, MCD, PFE, DD, PG, AXP

The stocks with a value score of 6 include: MMM, KO, AAPL, VZ

The stocks with a value score of 5 include: UNH, HD, GE

The stocks with a value score of 4 include: NKE, DIS

The only stock with a value score of 3 is: V

Total Scores

The five stocks with the highest overall scores include:

  • IBM - with an overall score of 134.5
  • TRV - with an overall score of 124
  • UNH - with an overall score of 117
  • CAT - with an overall score of 111
  • AAPL - with an overall score of 111

The six stocks with the lowest overall scores include:

  • MRK - with an overall score of 74
  • JNJ - with an overall score of 74
  • PFE - with an overall score of 74
  • VZ - with an overall score of 70
  • DD - with an overall score of 58.5
  • GE - with an overall score of 58

The remaining 19 stocks all had scores in between 107 and 77 and they can be seen here:

Stock Overall Score
BA 107
AXP 107
HD 107
JPM 104
WMT 102
NKE 102
V 102
INTC 101
DIS 101
CSCO 98
UTX 98
MSFT 94
CVX 88
MCD 88
GS 84
MMM 84
XOM 81.5
PG 78.5

Conclusion

I don't believe this ranking is an absolute best of/worst of list for comparing how attractive the dividends of the DOW stocks are, but I do believe it is a nice starting point towards developing a stronger picture of the overall benefits and risks associated with these stocks.

The best performing stock, IBM, didn't score the highest across any one specific category, but it did score strongly across each of them. The company has had tremendous dividend growth, offers a decent yield of 2.73%, and remains a fundamentally sound company. And while CAT and AAPL share the same score, I would give the advantage to AAPL when taking into consideration the company just started paying dividends in 2012. The company has increased its dividend every year since and is in a great position to continue seeing significant growth to its dividend for years to come.

And while I don't believe a low score means that a company should be avoided, I do believe that it means that you should probably not be investing in the stock specifically for its dividend, especially with the two lowest scoring companies DD and GE.

I hope this review/ranking will help investors who are considering investing in any of the DOW components because of their dividends. As always, I suggest individual investors perform their own research before making any investment decisions.

Disclosure: The author is long GE. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.