Should You Buy the 3 Highest-Paying Dividend Stocks in the Dow Jones?
Blindly buying high-yield stocks probably isn't the best investment approach. But buying the highest-yielding stocks that have already been preselected for inclusion into an index is at least likely to cull out some of the worst options. And yet that still doesn't mean you will be investing in companies that you'll be happy owning. So, should you buy the three highest-yielding Dow Jones Industrial Average (DJINDICES: ^DJI) stocks? Let's look at (NYSE: DOW), Verizon (NYSE: VZ), and 3M (NYSE: MMM) to find out.
Just to make things complicated, one of the highest-yielding stocks on the Dow is Dow. Dow Inc. (just Dow from now on) is a large chemicals company, and it yields roughly 4.7%, which is fairly attractive given that the yield on the S&P 500 index is a tiny 1.3%. The one big negative for some investors will be that Dow's dividend has been static at $0.70 per share per quarter for years. But given the nature of the chemicals industry, that's actually not shocking.
To simplify a complex business, chemicals are often commodity items subject to material-price volatility. The inputs into the chemical-making process, meanwhile, are also commodities (oil and natural gas), which can lead to material changes in Dow's costs. Put the two together and you get a company that has highly variable earnings. It would be a risk for Dow to jack up its dividend payment during good years if it knows that an industry downturn is going to, eventually, come around and require a dividend cut. Thus, a dividend that is sustainable through the cycle is probably the best option. Dow is a fine company, but you need to go in understanding that the business is volatile, and the dividend isn't likely to grow over time.
Source Fool.com
