Overlooked Dividend Stocks in the Dow Jones Industrial Average with Generous Returns: Should You Invest Now?
Investors looking for dependable dividend-paying stocks should examine the Dow Jones Industrial Average (DJI) (-0.97%). This is an excellent starting point for hunting down sources of passive income.
The index is selective, only admitting well-established, nationally significant enterprises that can generate constant profits during both bull markets and lengthy economic downturns. Regrettably, these qualities aren't eternally guaranteed. Recently, for instance, Walgreens Boots Alliance was eliminated from the index in February. The pharmacy chain's poor performances in recent years have been so severe that the company might be sold to a private equity firm.
The average trailing dividend yield among the 30 companies comprising the Dow Jones Industrial Average is a modest 1.9% at current share prices. Two of the 30 companies do not distribute dividends. However, there are a couple of stocks in the index with yields above double that rate: Verizon Communications (VZ) (-0.80%) and Chevron (CVX) (-0.65%), both of which have experienced declines of more than 10% in recent weeks. These declining share prices have improved their yields, but the companies must demonstrate the ability to continue their dividend increase series.
1. Verizon
Between early October and Dec. 18, Verizon's shares dropped 11%, but its dividend has remained intact. In September, the company raised its payout for the 18th consecutive year. At current share prices, new investors can enjoy a generous 6.7% yield, along with the assurance of owning a stake in the United States' largest telecommunications oligopoly's chief member.
Verizon's stock price has been negatively impacted by stagnating revenue. Slow demand for new iPhones impacted its wireless equipment sales, which dropped by 8.1% year over year to $5.3 billion in the third quarter.
Declining hardware sales are disheartening, but Verizon is powerless to influence consumers' indifference towards upgrading their smartphones when models barely change from year to year. However, investors will be pleased to learn that the wireless services it provides continue to gain popularity. In Q3, its wireless service revenue climbed 2.7% year over year to $19.8 billion.
Verizon ended September with $121.4 billion in net unsecured debt. While this is a heavy burden, it's not yet out of control. The company has managed to reduce its net unsecured debt to 2.5 times its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Before investing in Verizon for its dividend, you should be aware of its plans to acquire Frontier Communications for $20 billion in early 2025. Broadband internet has driven robust growth for Verizon and its peers. Acquiring Frontier will add millions of fiber optic connections to its network, but the additional debt Verizon will amass could possibly compel it to lower its dividend payout within the next year or two. Cautious income-seeking investors will want to observe the company's significant debt reduction following the Frontier acquisition prior to taking a substantial chance on this stock.
2. Chevron
Descenting oil prices have affected energy stocks, including the second-highest-yielding member of the Dow Jones Industrial Average. By Dec. 18, Chevron had plummeted 13% from its April peak.
Chevron has endured numerous oil price volatility periods over the past few decades, but none have lasted long enough to hinder this well-managed energy company from preserving its dividend-growth series. In February, Chevron increased its payout for the 37th consecutive year. At current prices, it provides a 4.6% yield.
Management has increased the payout by a total of 26% over the past five years. Instead of delivering larger payout increases during times of abundance, Chevron frequently returns cash to its investors through share repurchases. It has purchased enough shares to decrease its outstanding share count by 5.3% over the past five years, simplifying the payout maintenance.
Verizon's debt burden could make further payout increases difficult for the company, but investors don't need to worry about Chevron's finances. Over the past year, the company has earned more than five times the amount required to cover its interest expenses. Adding Chevron to a diversified portfolio should yield significant passive income for patient investors.
- For investors considering additional income sources, Verizon Communications could be an appealing choice due to its high dividend yield of 6.7%. Despite a recent 11% share price decrease, the company has maintained its dividend payout for 18 consecutive years.
- Chevron's steadfast dedication to dividend growth is evident in its 37-year streak, with a current yield of 4.6%. Despite a 13% decrease since its April peak, the company increased its dividend payout for the 37th time in February, showcasing its financial stability even in volatile oil price environments.
