These Are the 10 Dow Dividend Stocks With the Highest Yields -- but Should You Own Any of Them?

By Markets Fool.com


Image source: Getty Images.

Continue Reading Below

Dividend investors look to maximize their income, and the 30 stocks in the Dow Jones Industrial Average (DJINDICES: ^DJI) are a natural starting point for those seeking high-quality companies with solid histories of dividend payments. Below, you'll see the 10 current top-yielding Dow dividend stocks; but the bigger question you need to answer is whether they have the right mix of future growth to go along with their proven track record of dividend success.

The 10 highest dividend yields in the Dow

Here are the 10 highest-yielding stocks in the Dow as of Aug. 17:

Stock

Dividend Yield

Verizon (NYSE: VZ)

4.4%

Chevron (NYSE: CVX)

4.2%

Caterpillar

3.7%

Pfizer

3.6%

IBM

3.6%

Cisco Systems

3.6%

Boeing (NYSE: BA)

3.6%

ExxonMobil

3.5%

Coca-Cola

3.3%

McDonald's

3.2%

Data source: Yahoo! Finance.

Continue Reading Below

There are a couple of things you can see at first glance looking at this list. First, the telecom industry has sustained its reputation for paying healthy dividends, with Verizon topping the chart.

Even after the replacement of AT&T as a former Dow component, the healthy cash flow that Verizon and its telecom peers produce make the sector a popular one for dividend investors. Some smaller telecoms pay even higher yields, but Verizon has done a good job of balancing its dedication to shareholders against the need to reinvest in building out its wireless network infrastructure to stay ahead of its competition. Verizon has generated impressive double-digit average annual returns for shareholders over the long haul, and its dividend has played a key element in adding to the stock's overall total return.

Also, the Dow dividend list is full of stocks that have struggled recently. The most obvious area in turmoil is the energy sector, where crude oil prices have plunged from triple-digit levels a couple of years ago to below $50 per barrel currently. That has created challenges for energy companies like Dow components Chevron and ExxonMobil, and Chevron, in particular, has had to work hard in order to pick up the slack from weak oil and natural gas prices.

Still, the company has managed to find lucrative sources for future production, and the healthy dividend has helped give investors greater confidence about Chevron's long-term ability to stay profitable, even if oil prices don't recover fully in the near term. Similarly, Caterpillar has suffered from a poor environment in commodities, and IBM and Cisco are both having to reorient themselves to a mobile-driven world in which PCs play a less-vital role.

One industry where growth is flying higher

Perhaps the most-surprising entrant on this list is Boeing, which is going through one of the best periods in its history. The commercial aerospace industry has been on fire for several years now, and consolidation among major airlines has helped them find profits that they've used to upgrade their fleets, and make massive orders for new aircraft from Boeing and rival Airbus.

Skeptics will point to Boeing's most-recent earnings report, in which the aircraft manufacturer took massive one-time charges that caused it to report a loss for the quarter. Out of a total of $3 billion in pre-tax charges, $1 billion was related to decisions not to try to sell two early production 787 Dreamliner aircraft, while others came from cutting its 747 production projections, and from cost overruns related to its KC-46 Pegasus military tanker aircraft.

However, even though earnings guidance for the full year fell because of the charges, Boeing actually expects better operational results than it previously did once you adjust for those charges. Strong margins have helped bolster profitability, and orders for the always-popular 737 model line are offsetting weakness in the wider-body 777 and 787 models. As long as airlines remain profitable -- and they show few signs of losing their profitability in the near future -- then Boeing should be able to capitalize on strong demand from its customers.

It's always tempting simply to pick top-yielding stocks without further examination. But looking beyond the yield to examine growth prospects can save you from costly mistakes. Although dividend investors are hoping for further share-price bounces from Chevron, Caterpillar, and other Dow stocks that have seen their businesses affected by recent macroeconomic woes, Boeing has the history of success that has it at the top of its game right now.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool owns shares of ExxonMobil. The Motley Fool recommends Chevron, Cisco Systems, and Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.