10 Dow dividend stocks analysts love the most

With uncertainty running high amid a return of volatility, the case for the best Dow dividend stocks is as strong as ever.

  • By Dan Burrows,
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If the past month of market action underscores anything, it's that big, blue-chip dividend stocks never go out of style. And that's particularly true for the bluest of blue-chip equity-income vehicles – the top Dow dividend stocks.

The Dow Jones Industrial Average (.DJI), that elite bastion of 30 industry leading companies, is a haven for reliable dividend payers. Only one of its components – Salesforce.com (CRM) – doesn't pay a dividend at all.

And although long-time dividend machines Boeing (BA) and Walt Disney (DIS) have temporarily suspended their payouts in response to the COVID-19 crisis, the Dow remains a fountain of reliable and growing dividends. Indeed, a number of Dow dividend stocks are members of the S&P 500 Dividend Aristocrats, a list of companies that have increased their payouts annually for at least 25 consecutive years.

The Dow's dividend-heavy character helped it hold up better than the benchmark S&P 500 (.SPX) since the latter peaked out at a record close on Sept. 2. With uncertainty running high amid a return of volatility, the case for Dow dividend stocks is as strong as ever.

"Dividend strategies have gained a foothold with market participants seeking potential outperformance and attractive yields, especially in the even lower-rate environment we've seen since early 2020 as the world deals with the economic fallout from COVID-19," notes Tianyin Cheng, senior director of Strategy Indices at S&P Dow Jones Indices. "Stocks with a history of dividend growth could present a compelling investment opportunity in an uncertain environment."

Given that reality, we screened the blue-chip average for analysts' highest-rated Dow dividend stocks.

Here's how the process works: S&P Global Market Intelligence surveys analysts' stock ratings and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell. Any score of 2.5 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call.

We then limited ourselves to Dow dividend stocks with yields of at least 2%. (The yield on the blue-chip average is 1.86%, according to data from Birinyi Associates.) Lastly, we dug into research, fundamental factors and analysts' estimates on the top-scoring names.

That led us to this list of the top 10 Dow dividend stocks, based on Wall Street's consensus recommendations. Read on as we analyze what makes each one stand out.

Share prices and other data are as of Oct. 1, courtesy of S&P Global Market Intelligence and YCharts. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Companies are listed by strength of analysts' consensus recommendation, from lowest to highest.

10. Procter & Gamble

  • Market value: $338.9 billion
  • Dividend yield: 2.5%
  • Analysts' consensus recommendation: 2.29 (Buy)

Consumer staples stocks such as mega-cap Procter & Gamble (PG) were early winners from the pandemic and rolling lockdowns. People will always need products such as P&G's Charmin toilet paper, Head & Shoulders shampoo and Crest toothpaste.

But now some analysts worry about increasingly difficult year-over-year comparisons – not to mention higher costs for raw materials and other expense pressures.

The market is even more concerned than the Street. This Dow dividend stock is essentially unchanged for the year-to-date, trailing the S&P 500 by almost 16 percentage points.

Procter & Gamble has announced price increases to offset higher costs, notes UBS Global Research. But analyst Peter Grom maintains a Neutral (Hold) recommendation on shares, partly due to increased commodity and freight costs, as well as foreign exchange headwinds.

"Given volatility around year-over-year comparisons and inflation, at these PG share-price levels, we would look for a more attractive entry point or wait until we have more visibility into a scenario where PG can deliver above the high-end of its guidance range before becoming more constructive on shares," Grom writes.

The Street's consensus recommendation, however, still works out to Buy. Six analysts have this Dow dividend stock at Strong Buy, four say Buy, 10 call it a Hold and one says Sell.

Happily for income investors, P&G is a dividend-growth machine. Indeed, it's a member of the S&P 500 Dividend Aristocrats, a list of companies that have increased their payouts annually for at least 25 consecutive years.

In P&G's case, the Cincinnati-based company's dividend-growth streak stands at 65 years. The most recent hike – a 10% increase in the quarterly dividend to 86.98 cents per share – came in April.

9. JPMorgan Chase

  • Market value: $499.4 billion
  • Dividend yield: 2.4%
  • Analysts' consensus recommendation: 2.19 (Buy)

Analysts as a group have remained steadily bullish on JPMorgan Chase (JPM) over the course of 2021, and their clients have been resoundingly rewarded as a result.

Shares in the nation's largest bank by assets are up nearly 32% for the year-to-date, leading the broader market by almost 16 percentage points.

JPM's strength across multiple business lines and an improving economic backdrop make it a standout, analysts say. It also helps that interest rates appear to be headed directionally higher.

"We think JPM is well positioned for increased loan activity from the consumer and small business that, combined with investment banking, is 83% of total revenue," writes CFRA Research analyst Kenneth Leon (Buy). "We think JPM is gaining wallet share in investment banking as a top-three firm."

Over at Argus Research, analyst Stephen Biggar (Buy) notes that the bank's most recent quarterly results "further demonstrated the benefits of JPM's vast revenue diversification." He points to expectations for continued improvement in loan growth, favorable credit quality and a cheap valuation as reasons to buy the stock.

Bullishness like Biggar's is predominant on the Street. Of the 26 analysts issuing opinions on this Dow dividend stock tracked by S&P Global Market Intelligence, 10 rate it at Strong Buy, six say Buy, seven have it at Hold, one calls it a Sell and two say Strong Sell.

JPM's dividend yield might not wow investors, but they can't quibble much with its growth streak and growth rate. As far as Dow dividend stocks go, this one has raised its payout for 11 consecutive years, good for a 10-year annualized growth rate of 1,700%.

8. Cisco Systems

  • Market value: $232.6 billion
  • Dividend yield: 2.7%
  • Analysts' consensus recommendation: 2.13 (Buy)

Cisco Systems (CSCO) stock is beating the S&P 500 by more than 7 percentage points so far this year and has nearly doubled the performance of the Dow Industrials. The Street expects more outperformance ahead.

Of the 30 analysts covering this Dow dividend stock tracked by S&P Global Market Intelligence, 10 rate it at Strong Buy, six say Buy and 14 have it at Hold. That's good for a consensus recommendation of Buy.

Although this Dow dividend stock's rising price has put pressure on the dividend yield (a stock's price and its dividend yield move in opposite directions), there's no questioning management's commitment to returning cash to shareholders.

Cisco has increased its dividend annually for 10 years. And at 2.7%, the yield is comparatively generous, too. After all, the tech sector sports an average dividend yield of just 1.4%.

Where the outlook gets tricky for investors is that Cisco is transitioning from being heavily dependent on hardware such as internet routers and switches to higher-growth software and cloud services. It's been a challenge, to say the least.

"Cisco is seeing orders rebound as most companies, large and small, rebound IT spending," writes Needham analyst Alex Henderson (Hold). "Offsetting these stronger orders, supply constraints are holding growth back, but providing visibility further out than normal."

At Jefferies, analyst George Notter (Buy) says the global chip shortage is very much a current challenge, but focusing on that headwind misses the forest for the trees.

The "bigger picture" with CSCO, Notter argues, is "the business transformation/digitization trends that have been driving CSCO's business aren't going away."

The analyst further contends that CSCO's "below-market valuation and the dividend yield should help keep a floor on the stock price."

7. Goldman Sachs

  • Market value: $128.1 billion
  • Dividend yield: 2.1%
  • Analysts' consensus recommendation: 2.07 (Buy)

Goldman Sachs (GS) is the top-performing Dow Jones stock so far this year – up more than 44% through Oct. 1. – and analysts remain bullish on the investment bank's stock.

"We believe capital markets will remain very active in a low rate, risk-on environment from corporate issuers, M&A and investors," writes CFRA Research analyst Kenneth Leon (Strong Buy). "We think GS can extend high growth in asset/wealth management and consumer banking, while investment banking benefits from record initial public offering and M&A pipeline."

And investment banking strength really plays to Goldman Sachs' hand, analysts note.

"The investment banking backlog increased to a new record level in Q2 '21 despite headwinds from strong transaction closings that drove investment banking revenue to its second highest quarter on record," writes Piper Sandler analyst Jeffery Harte (Overweight).

Over at Jefferies, analyst Daniel Fannon initiated coverage of the Dow dividend stock at Buy in June, citing strength in investment banking and capital markets, among other positives expected to drive shares higher.

Fannon is in the majority on the Street, which has a consensus recommendation of Buy. Of the 27 analysts issuing opinions on GS tracked by S&P Global Market Intelligence, 10 rate it at Strong Buy, seven say Buy, nine have it at Hold and one says Strong Sell. Meanwhile, they forecast the firm to generate average annual earnings per share (EPS) growth of 13.6% over the next three to five years.

Although this Dow dividend stock's yield is paltry compared to the financial sector average of 3.2%, the investment bank has at least increased its payout annually for 10 consecutive years.

6. Chevron

  • Market value: $201.8 billion
  • Dividend yield: 5.1%
  • Analysts' consensus recommendation: 2.07 (Buy)

Chevron (CVX) is the lone energy-sector component among the 30 Dow Jones stocks. Shares are up almost 24% so far this year, besting the broader market by nearly 7 percentage points.

Wall Street has remained steadfast in its bullish view of this Dow dividend stock for more than 18 months. Ten analysts rate the energy stock at Strong Buy, six say Buy and 12 rate it at Hold, per S&P Global Market Intelligence.

There is indeed a compelling Buy case to be made for the second-largest integrated oil major in the U.S. after Exxon Mobil (XOM), and plenty of analysts contend investors will be rewarded for their patience.

"In the current volatile energy environment, a company's balance sheet strength and place on the cost curve are critical, and favor integrated oil companies that are well positioned to manage a potentially long period of volatile oil prices," writes Argus Research analyst Bill Selesky (Buy). "CVX is one of these companies as it benefits from best-in-class production growth, industry-low operating costs and a strong balance sheet."

The analyst further notes that Chevron plans to resume stock buybacks in the third quarter at a rate of $2 billion to $3 billion annually, calling it a "solid starting point" that could eventually return buybacks to their pre-pandemic level of $5 billion per year.

Raymond James analyst Justin Jenkins (Outperform) makes a similar case.

"With the strongest financial base of the majors, coupled with an attractive relative asset portfolio, Chevron offers the most straightforwardly positive risk/reward," Jenkins writes.

Meanwhile, there's no questioning CVX's commitment to its dividend, having lifted the payout annually for more than three decades. It's a comparatively generous dividend too, yielding 5.1% vs. the energy sector average of 4.5%.

5. Johnson & Johnson

  • Market value: $422.4 billion
  • Dividend yield: 2.6%
  • Analysts' consensus recommendation: 2.00 (Buy)

Analysts have a consensus recommendation of Buy on Johnson & Johnson (JNJ), citing its strong pipeline, a rebound in demand for medical devices and acquisitions, among other positives.

"The company's current growth opportunities, pharmaceutical pipeline strength, and success in integrating acquisitions support our $200 target," writes Argus Research analyst David Toung (Buy). "J&J is also benefiting from a growing consumer business, boosted by newly acquired brands."

Toung's 12-month target price gives this Dow dividend stock implied upside of almost 25%. The Street's average target of $185.83 is less optimistic, giving shares implied upside of about 16% over the next year or so.

Whether Toung's target price is achievable depends in part on JNJ's success in integrating Momenta Pharmaceuticals, which it acquired in 2020 in a $6.5 billion deal.

At Stifel, analyst Rick Wise agrees that JNJ has multiple growth drivers and is a classic buy-and-hold name. He simply doesn't like the stock at current levels.

"We view Johnson & Johnson as a core healthcare holding and total-return vehicle in any market environment for investors looking for relative safety and stability," writes Wise, who rates JNJ at Hold because "there could be more opportune entry points."

As for being a total-return vehicle, few companies have shown a greater commitment to dividend growth. This Dividend Aristocrat has raised its payout annually for 59 consecutive years.

Those payouts really do add up. Over the past five years, JNJ gained almost 36% on a price basis. Including dividends, however, its total return comes to more than 55%.

Of the 18 analysts issuing opinions on this Dow dividend stock, eight rate it at Strong Buy, two say Buy and eight have it at Hold.

4. Coca-Cola

  • Market value: $228.9 billion
  • Dividend yield: 3.2%
  • Analysts' consensus recommendation: 1.92 (Buy)

The pandemic put a crimp on sales at restaurants, bars, cinemas, live sports and other events, all of which took a toll on Coca-Cola (KO). But now that the global economy is back on the move, analysts increasingly like KO as a recovery play among the Dow dividend stocks.

"We expect increased consumer mobility, market-share gains and a focus on innovations (Coke Zero reformulation, Topo Chico, Costa) to continue to drive top-line growth," writes UBS Global Research analyst Sean King (Buy). "Net, we remain confident in KO's sequential improvement story and believe it will deliver double-digit percent EPS growth over the next two years."

Credit Suisse analyst Kaumil Gajrawala (Outperform) takes a similar view of the beverage giant's prospects.

"Fundamentals were solid pre-pandemic and Coke is set to emerge stronger from the COVID crisis given strategic initiatives and organizational changes," Gajrawala says. "We believe this sets Coke up for a period of high-single to low double-digit earnings growth."

With shares off 3.3% for the year-to-date, bulls can point to a reasonable valuation when making their Buy calls. Of the 26 analysts covering this Dow dividend stock tracked by S&P Global Market Intelligence, 11 rate it at Strong Buy, six say Buy and nine call it a Hold.

Meanwhile, equity income investors shouldn't forget Coca-Cola's status as a Dividend King. The beverage giant has lifted its payout annually for almost 60 years. In addition to being reliable with its dividend, Coke is also generous. This Dow dividend stock's current yield of 3.2% easily tops the consumer staples sector's average of 1.9%.

Lasty, we would be remiss if we didn't mention that Coca-Cola is one of Warren Buffett's favorite stocks.

3. Home Depot

  • Market value: $348.1 billion
  • Dividend yield: 2.0%
  • Analysts' consensus recommendation: 1.88 (Buy)

Home Depot (HD) has long been one of the Street's favorite ways to play the housing market. Turns out, HD also was a profitable way to play COVID-19. A country basically cooped up at home was great for business at the nation's largest home improvement chain.

Analysts expect the good times to keep rolling, but the end of the pandemic era does add a layer of uncertainty.

"HD has likely generated strong third-quarter sales trends in its Pro segment even as Do-It-Yourself trends have likely slowed," writes UBS Global Research strategist Ajit Agrawal (Buy). "This trend is likely to continue over the rest of fiscal 2021. Plus, a decline in COVID costs should drive nicely positive EPS growth for HD, despite tough year-over-year comparisons."

Although shares in HD are beating the broader market by about 8 percentage points in 2021, they remain below their 52-week high notched in May. Overly high expectations may be partly to blame, says Raymond James analyst Bobby Griffin, who advises investors to focus on the big picture and maintain long horizons.

"While the prior comparisons are tough, the industry backdrop for Home Depot remains favorable, driven by the consumer gaining confidence to take on more complex projects, low interest rates and higher equity values in homes," writes Griffin (Outperform). "We advise long-term focused investors to buy the dip given the solid industry fundamentals, strong execution and favorable long-term growth outlook."

As for the dividend, Home Depot has raised it annually for 12 straight years – and at a compound annual rate of 19% over the past five years.

Of the 33 analysts covering this Dow dividend stock tracked by S&P Global Market Intelligence, 16 rate it at Strong Buy, seven say Buy, nine call it a Hold and one says Strong Sell.

2. McDonald's

  • Market value: $181.4 billion
  • Dividend yield: 2.3%
  • Analysts' consensus recommendation: 1.78 (Buy)

McDonald's (MCD) is bouncing back from the pandemic, which caused a steep drop in in-store traffic. Naturally, analysts see it as a golden way to bet on the post-COVID-19 recovery.

The fast-food giant also happens to be a Dividend Aristocrat, with a 45-year streak of annual increases. Most recently, MCD raised its quarterly dividend by 7% to $1.38 per share, payable on Dec. 15.

Although this Dow dividend stock is lagging the broader market by about 3 percentage points for the year-to-date, the Street expects MCD to deliver market-beating returns once its international segment catches up to a rebounding U.S.

"We continue to identify drivers for upside," writes Oppenheimer analyst Brian Bittner (Outperform). "The reliable and dominant U.S. business is armed with upgraded sales strategies to drive outperformance, while there is an under-appreciation for an offensive recovery in the hard-hit international business (60% of profits pre-COVID-19)."

Indeed, an accelerating recovery both at home and especially abroad remains a powerful catalyst for the fast-food giant heading into next year, the pros say.

"With durable sales momentum, opportunities to gain share in international markets, and margin progress, we continue to see upside to MCD shares," writes BMO Capital Markets analyst Andrew Strelzik (Outperform).

True, not every analyst is bullish on the stock. Raymond James analyst Brian Vaccaro (Market Perform), for one, takes issue with MCD's valuation.

"We believe the stock is fairly valued at current levels and would be patient for a better entry point to materialize," he says.

The bottom line? Eighteen analysts rate this Dow dividend stock at Strong Buy, eight say Buy and 10 call it a Hold, per S&P Global Market Intelligence. That works out to a consensus recommendation of Buy, with high conviction.

1. Merck

  • Market value: $206.1 billion
  • Dividend yield: 3.2%
  • Analysts' consensus recommendation: 1.77 (Buy)

With a consensus recommendation of Buy with high conviction, Merck (MRK) earns the top spot among the Street's favorite Dow dividend stocks.

Analysts' bull case rests partly on the fact that a prolonged period of underperformance has made MRK stock too cheap to ignore. It also helps that Merck kicked off the fourth quarter with a huge catalyst.

Shares popped as much as 12.3% at one point during the Oct. 1 session on news that Merck's experimental COVID-19 pill proved to be highly successful in a pivotal clinical study.

The rally lifted the pharmaceutical giant's shares to within less than a percentage point of breakeven for the year-to-date. However, as promising as that move may be, MRK still lags the S&P 500 by more than 16 points in 2021.

The sliding share price has MRK trading at just 13.6 times the Street's forward EPS estimate. That offers a 10% discount to its own five-year average of 15.1 times forward earnings, per Refinitiv Stock Reports Plus. Additionally, MRK trades at a 34% discount to the S&P 500, which goes for 20.7 times expected earnings, per Yardeni Research.

MRK's depressed valuation is partially attributable to concerns about growth following Merck's June spinoff of its women's health business to shareholders.

"We are maintaining our Hold rating on Merck, reflecting the company's uncertain growth and margin profile after the Organon (OGN) spinoff," write Argus Research analysts David Toung and Caleigh McGough. "The spinoff should help Merck to achieve higher revenue and EPS growth over time; however, the company has also lost a range of mature, higher-margin products."

Argus' caution may be warranted, but it's the minority view. Eleven analysts rate this Dow dividend stock at Strong Buy, five say Buy and six call it a Hold.

And in addition to MRK's potential for share-price appreciation, the Street applauds the reliability and generosity of its dividend. Not only has the firm raised its payout annually for 11 consecutive years, but the current yield is double the health-care sector average of 1.6%.

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