AI stocks may be driving the current bull market to historic highs, but they're not for everyone. A retiree who relies on dividends may avoid a sector that some fear is in a bubble. Searching blue chip stocks for new targets is riskier. Blue chips are best found in the Dow Jones Industrial Average (DJINDICES: ^DJI), a select index of 30 U.S. equities from all major industries.
After Amazon displaced Walgreens Boots Alliance in the blue chips, the Dow's top dividend stocks altered. We'll examine the top three Dow dividend-paying stocks today to see if any are worth purchasing.
1. Verizon: 6.7% dividend. Verizon (NYSE: VZ) has been a dividend stock for years, but also a disappointment. The telecom lost market share to T-Mobile for years due to strategic 5G rollout blunders that cost it coverage and consumers.
Verizon's business has stabilized in recent quarters. The corporation bought new C-band spectrum to bridge a midband spectrum coverage gap that can handle density and give comprehensive coverage.
After fixing those mistakes, Verizon's postpaid phone subscriber growth has increased and the stock has recovered. The telecom behemoth isn't likely to grow -- management anticipates its profit to drop this year -- but it appears to have conquered its greatest issues. Verizon pays a stable dividend and is profitable. It's a good income investment, and if profits rise, shares could rise.
2. 3M: 6.5% dividend For the wrong reasons, 3M (NYSE: MMM) is the highest-yielding Dow company, competing with Verizon. Its stock price has decreased due to slower growth on macro challenges and other considerations, raising the dividend yield to a level the industrial group has rarely paid. Recently, the corporation settled two multibillion-dollar class action lawsuits that would affect its cash flow for nearly a decade.
Media reports have described a cultural malaise that has stymied innovation at 3M, and its multibillion-dollar liabilities from its PFAS "forever chemicals" and faulty military-grade earplugs may deter the company from taking risks. The spinoff of its healthcare business, Solventum, could bring in $12 billion over the next five years, including a $7.7 billion special dividend at the time of spinoff and future dividends as 3M retains a 19% stake.
That will help 3M pay its legal bills, but its basic business challenges shouldn't be ignored. The company forecasts organic sales to climb 2% in 2024 after falling 3.2% in 2023. 3M's yield is attractive, but income investors can choose stronger equities.
3. Dow: 4.9% dividend Dow (NYSE: DOW) has struggled like 3M and other chemical businesses. Volume sales rose 2% in the fourth quarter, while net sales fell 10% to $10.6 billion due to slowing global macroeconomic activity and lowering prices. Local prices fell 13% due to lower feedstock and energy prices.
Operating income dropped 7% to $559 million. Dow, like other Dow Jones Industrial Average firms, leads its industry, yet it has minimal control over inputs like commodities prices and the global economy.
Dow, carved off from DuPont five years ago when the two corporations combined, has traded flat since then, lagging the S&P 500. Given the company's challenges and its estimate of prolonged industrial demand downturn into the first quarter, that pattern is unlikely to alter. Although its 4.9% dividend yield is solid, the company should be avoided for now.
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