Should You Buy the 3 Highest Paying Dividend Stocks in the Dow Jones?

Should You Buy the 3 Highest Paying Dividend Stocks in the Dow Jones?
Should You Buy the 3 Highest Paying Dividend Stocks in the Dow Jones?

Three out of 30. That’s how many shares in Dow Jones Industrial Average currently Do not do it pay dividends. And the number will drop to two later this year as well Walt Disney plans to reintroduce the dividend program.

The Dow has an average dividend yield of around 2.3%. But you can get much higher returns with certain stocks in the blue chip index. What are the three highest paying dividend stocks in the Dow Jones and should you buy them?

1. Verizon Communications

Verizon Communications (VZ 0.93%) easily ranks as the highest paying Dow dividend stock. Its yield currently tops out at 7.1%. Verizon has increased its dividend for 16 consecutive years.

But the ultra-high yield is not only due to dividend increases. Shares of the telecommunications company are about 40% below their previous high. As Verizon’s stock price fell, its dividend yield rose.

The stock looks crazy cheap based on its forward earnings multiple of 8.1. But Verizon has a massive debt load of $150.6 billion hanging around the company’s neck like an albatross. It paid out over $3.6 billion last year in interest payments.

Earnings fell in 2022. However, there is some reason for optimism. For example, the company’s broadband performance in the most recent quarter was the best in more than a decade. The increased use of 5G can also provide a good tailwind.

Some investors will rightly turn their noses up in favor of stocks with better growth prospects. However, I think Verizon is still a pretty good pick for income investors.

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2. 3M Company

If you like Verizon’s track record of dividend increases, you’ll probably love it 3M company (MMM -0.70%). The industrial giant has increased its dividend for 64 consecutive years. That places 3M in the elite group of stocks known as Dividend Kings.

It also provides a juicy dividend of almost 5.8%. However, like Verizon, this high return is largely a result of 3M’s declining stock price. The stock has plunged nearly 50% below its mid-2021 high.

The company faces many challenges, including high inflation and financial uncertainty. 3M reported lower-than-expected revenue growth in the fourth quarter of 2022. They also expect revenue and earnings to decline year-over-year in 2023. Profit margins have also declined in recent years.

3M could be a decent long-term stock for income investors. However, my view is that there are better options, with the company’s headwinds likely to persist this year.

3. Walgreens Boots Alliance

Walgreens Boots Alliance (WBA -0.83%) may not be too far away from joining 3M in the Dividend Kings club. The pharmacy company has increased its dividend for 47 consecutive years, and it has paid dividends every quarter for more than 90 consecutive years.

3M is also not far ahead of Walgreens when it comes to dividends. Walgreens’ yield currently tops 5.7%. This may sound like a broken record, but the pharma stock’s sharp decline (it’s about 40% below its 2021 peak) contributed significantly to the rising returns.

But things could be looking up for Walgreens. The company raised its revenue outlook for 2023 in January. It appears to be on track to hit earnings guidance as well. Both are especially encouraging considering Walgreens won’t benefit as much from covid-19 vaccinations and testing this year.

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I wouldn’t argue that Walgreens is the best dividend stock for investors to buy right now. However, with its attractive yield, good track record for dividend increases, and potentially improved fortunes, I think this Dow dividend stock is a better choice now than it has been for some time.

Keith Speights holds positions at Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends 3M and Verizon Communications and recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

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