High dividend yields can be a warning sign for investors. Returns generally correlate negatively with stock price movements. So higher returns often reflect a company’s underperformance and investors’ lack of confidence in its recovery potential. In other words, there are real dangers in trying to increase your returns by chasing returns.
A popular tactic that investors use in an attempt to minimize these risks is to focus on high-quality companies that may be going through a rough patch. That is the gist behind the ‘Dogs of the Dow’ strategy, which involves buying the ten highest-yielding stocks in the world. Dow Jones Industrial Average (DJINDICES: ^DJI) at the beginning of the year and hold it until the beginning of the following year. Following that strategy has a twofold benefit: It invests you in stocks with unusually high dividend yields, and it steers you away from stocks that have risen so much that they may command excessive premiums.
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Here’s a look at the Dow Jones’ 10 highest dividend yields as we head toward the end of 2025. Keep in mind that an investor could earn a 1.8% return by owning an index fund that tracked the entire index of 30 companies.
|
DJIA dividend payer |
Yield |
DJIA Dividend Payer |
Yield |
|---|---|---|---|
|
Verizon Communications (NYSE: VZ) |
6.7% |
Coca-cola |
3% |
|
Chevron (NYSE: CVX) |
4.3% |
Amgen |
2.8% |
|
IBM (NYSE: IBM) |
3.2% |
Cisco systems |
2.8% |
|
Merck & Co. |
3% |
Procter & Gamble |
2.4% |
|
Johnson & Johnson |
3% |
3M |
2.4% |
Source: Yahoo! Finances.
Verizon appears to be the most tempting option for income investments, with a yield approaching 7%. However, the telecom giant will not simply lag behind the market in 2024. Shareholders have been losing ground for years. Many factors combine to keep overall returns low, including the fact that consumers are holding on to their smartphones for much longer these days. It’s also difficult to drive sales in the competitive and largely saturated market for wireless and broadband services.
Most Wall Street professionals expect Verizon’s revenue to grow less than 1% this year and less than 2% in 2025. Still, these numbers don’t describe a broken business model, and Verizon will likely continue paying hefty dividends for the foreseeable future. year.
Chevron has many advantages as an income investment. The oil company’s highly efficient operations generated nearly $10 billion in operating cash flow last quarter, despite falling gas prices. During that period, $8 billion was also returned to shareholders: $3 billion through dividend payments and the rest through share buybacks.
Continued growth on both fronts should be driven by the company’s rising oil production thanks to drilling projects in places like Kazakhstan and the Gulf of Mexico. However, investors considering buying this energy stock should be aware that short-term returns will be highly dependent on the unpredictable swings in oil prices.
IBM shares beat the market through mid-November this year, even though the tech giant just announced lackluster third-quarter results. On a constant exchange rate basis, sales increased by only 2%. Profit before tax was also disappointing: the profit margin in the first three quarters of the year was 5.5%, compared to 11.1% in the previous year.
The pressure the massive company faced came mainly from weaker discretionary spending in areas such as consulting services and a hardware segment that is in the midst of transitioning to next-generation mainframe products. Buying IBM stock today is more of a bet on the attractive software and AI services companies, which have long prospects for future growth. As a result, I recommend that investors consider taking advantage of the recent price drop in this tech stock, which is now yielding just over 3%.
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*Stock Advisor returns November 11, 2024
Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Chevron, Cisco Systems, and Merck. The Motley Fool recommends 3M, Amgen, International Business Machines, Johnson & Johnson and Verizon Communications. The Motley Fool has a disclosure policy.
Should You Buy the Three Highest Paying Dividend Stocks in the Dow Jones? was originally published by The Motley Fool
