3 High Dividend Dow Jones Stocks

Thanks to surging stock prices over the past two years, dividend yields on major stock indices have fallen to fairly low levels. The S&P 500, for instance, currently carries an average yield of just 1.3%.

The mature companies in the Dow Jones Industrial Average fare a bit better, and some of them offer yields that exceed the S&P 500 several times over. Here, we take a look at three of the highest-yield stocks in the DJIA

Chevron

Oil giant Chevron (NYSE:CVX) offers a yield of 4.4%, paying out $6.04 per share each year. Even with this rather high yield, the stock’s dividend payout ratio is still under 75%, giving management a fair amount of cushion for both protecting the current dividend and continuing to raise it in the future.

Despite its excellent yield, investors should understand that Chevron is currently in slightly choppy waters. The company’s revenues have fallen on a year-over-year basis in six of the past seven quarters. While this is somewhat concerning, it’s important to note that full-year revenues have stabilized well above their pre-2020 levels and closer to where they were in the early 2010s.

A very similar trend has played out in Chevron’s net income performance. For the 12 months ending in Q3, the company reported $16.7 billion in net income. This is less than half the $35.5 billion the company earned in 2022.

Again, net income is still beating out Chevron’s performance from 2015 through 2021. Given the highly cyclical nature of the oil and gas industry and the fact that Chevron is still delivering consistently profitable results, it seems likely that this is a temporary downturn that is simply part of Chevron’s natural business cycle.

The good news for CVX investors is that the stock may be undervalued at today’s prices. Chevron trades at only 16.3x earnings, 1.4x sales and 1.7x book value.

On their own, these metrics suggest that the current price is below the stock’s intrinsic value. This view seems to be shared by Wall Street analysts because the average target price for CVX is $175.71. If the stock reaches this target over the coming 12 months, shareholders would see returns of nearly 19% on top of their market-beating dividend returns.

Amgen

At 3.5%, biotech company Amgen (NASDAQ:AMGN) carries the lowest yield among the three stocks we’re covering here. What Amgen does have going for it, though, is a history of fairly rapid dividend growth.

Looking back at the last 10 years, management has compounded the dividend payout by almost 14% annually. Though that rate has slowed more recently, the 3-year average growth rate is still 8.5%.

Right now, Amgen’s revenues are rising very quickly. In each of the last four quarters, the company’s total revenues have risen by 19.8% or more on a year-over-year basis. Net incomes, however, have been quite a bit less predictable. Even with an exceptionally strong Q3 net income of $2.8 billion baked in, the company’s full-year net incomes are currently still well below where they were during the 2010-19 decade.

Investors may also be wise to expect the company’s choppy results to continue for some time. Right now, Amgen is facing rising competition from biosimilar drugs that is putting pressure on its existing drug portfolio.

While the company has a decent pipeline of new drugs that can gradually work their way to market in the coming years, the near-term prospects for Amgen may not be quite as positive.

With that said, Amgen is still a company that could prosper over the long run. With its diversified drug portfolio and its ability to invest heavily in drug discovery and development due to its sheer scale, Amgen still appears to have a decent moat within the pharmaceutical industry. Although competitors can erode some of this moat by making similar alternatives to the company’s older drugs, they mostly lack the scale to keep up with Amgen’s pipeline.

Those willing to ride out short-term volatility may very well see decent share price appreciation in addition to ongoing dividend growth. Right now, Amgen trades north of $260 per share. Given that the average price target for the stock is a little above $321, investors could see returns of nearly 23% if Wall Street’s estimates of AMGN’s value prove correct.

Verizon

Rounding out our list of telecom titan Verizon (NYSE:VZ), which boasts an extremely high yield of 6.4%.

Though it hasn’t yet broken into the dividend aristocrats, Verizon has been increasing its dividend for 19 years. Given that this period included both the 2008 financial crisis and the 2020-21 turbulence, it seems fair to say that Verizon’s dividend has proven fairly robust.

The one major problem with VZ’s dividend is its payout ratio of over 115%. With a dividend payout that’s above current earnings, Verizon is likely to have trouble sustaining and growing its distribution over the long haul. For now, though, Verizon’s cash flows are high enough to keep paying the dividend at its present level.

Closely tied to this is the fact that Verizon’s dividend growth has been quite slow for many years. Over the last 10 years, VZ’s dividend has only increased at a compounded annual rate of 2.3%. Given that net income has been trending downward recently and that the dividend already exceeds earnings per share, it’s difficult to see Verizon returning to a substantial dividend growth rate anytime in the near future.

Taking these factors into account, Verizon may appeal to investors who want immediate income from their portfolios. For those seeking long-term appreciation or dividend growth, though, VZ stock presents some fairly substantial risks.

Barring a substantial increase in profitability, Verizon likely won’t be able to accelerate its dividend increases. Moreover, investors who hold VZ shares have seen share prices decline by 0.5% over the last year while the market as a whole rose more than 20%. If the same dynamics remain in play, Verizon could continue to saddle investors with large opportunity costs in exchange for its extreme dividend yields.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.