Top Ten Dividend-Yielding Stocks

Posted by YCharts

Dow 10,000. The market closed above this key level for the first time on March 29, 1999. Richard Grasso, then the chairman of the New York Stock Exchange and New York City Mayor Rudolph Giuliani broke out the Dow 10,000 hats. Now, more than a decade later the Dow sits at 10,463. Given the lack of performance of the Dow Jones Industrial Average, many investors might think this is the last place to look for solid investments.
So, the Dow hasn’t moved in 10 years and treasury yields continue the descent that started in the early 80’s.

The lack of Dow performance has created an opportunity to buy blue chip companies that yield higher than treasuries and have potential upside in the stock prices. Of the 30 companies in the Dow, the 10 below represent the top dividend yielding stocks in the Dow Jones Industrial Average with earnings yields in excess of the 10 year treasury yield that are not overly levered. We sorted the companies by dividend yield and highlight some of the key trends for each company that investors may want to consider.
Merck (MRK) – Dividend Yield 4.15%
Not only does Merck pay a strong dividend, it’s earnings yield is near 12%. The company averaged over $1.4B a quarter in free cash flow over the last 10 years with profit margins consistently over 20%. Merck sports a PE Ratio under 9 and is trading at the low end of it’s historical multiple.
Kraft (KFT) – Dividend Yield 3.77%
Kraft’s stock price slid from it’s peak in the 40’s during the first quarter of 2002 down to the low 20’s in late 2008. During this time, Kraft’s book value per share rose dramatically and now represents over 70% of the stock price.
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Chevron (CVX) – Dividend Yield 3.5%
Chevron manages to grow revenue consistently in the 20% range with profit margins in the 7 to 10% zone.
Johnson & Johnson (JNJ) – Dividend Yield 3.35%
Look at the free cash flow for J&J. The trend is solid and the company is trading at a low multiple to revenues.
Intel (INTC) – Dividend Yield 3.34%
Intel’s cash on hand is a healthy $18 billion. The company consistently puts up mid 20% profit margins and is trading near all time lows on a price to sales basis.
Home Depot (HD) – Dividend Yield 3.10%
Home Depot trades at a far cry from the $130 billion it was worth back in 1999. Revenue growth averages 5% and the company has taken on a fair amount of debt in recent years. Home Depot’s PE Ratio is 17 which may be a little rich given the top line growth rate.
Procter & Gamble (PG) – Dividend Yield 2.98%
P&G is ranked No. 1 or 2 in almost all of its markets, and in many product lines it has huge market share. That makes it tough to grow. Sales for fiscal 2010 were $78.9 billion, up about 3%. Profit from continuing operations was essentially flat at $10.9 billion.
Coca-Cola (KO) – Dividend Yield 2.90%
Coke-Cola has traded sideways for the last 10 year but it’s valuation as measured by the price to sales ratio is at historical lows and free cash flow continues to rise.
McDonalds (MCD) – Dividend Yield 2.87%
McDonald’s has raised its dividend each and every year since paying its first dividend in 1976. MCD switched to quarterly payments in 2008. In 2009, the company returned over $5.1 billion to shareholders through share repurchases and dividends paid, bringing the three-year total to $16.6 billion under the Company’s $15 billion to $17 billion cash return to shareholders target for 2007 through 2009.
Exxon (XOM) – Dividend Yield 2.78%
Exxon’s market cap is over $311B with an earnings yield of 8.5% and a solid dividend yield. Exxon’s profit margins averaged 8% over the last decade with revenues increasing over 200%.
The Dow components represent large, stable companies with rich histories. The Dow hasn’t moved in 10 years, but many of the companies mentioned have increased their dividends and earnings significantly. Investors know that stock prices follow earnings over the long-term. So this may be the time to buy some of the Dow high yielders, and if the prices continue to flatline, at least you get paid to wait.