5 best Dow dividend stocks to buy now

This mini-portfolio of Dow dividend stocks is well-positioned to generate income and deliver outperformance in tempestuous market times.

  • By DAN BURROWS,
  • Kiplinger
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Among the many lessons the worst year for equities since 2008 has retaught investors, it's that the best blue-chip dividend stocks never go out of style. Or at least that has been true for the top-rated Dow dividend stocks thus far in 2022.

Back in February, we noted that analysts' top-rated dividend payers among the 30 Dow stocks were beating the market handily, and we figured they would continue to give income investors some much-needed peace of mind.

Indeed, they did. As you can see in the chart below, a market-cap weighted index of the five top-rated Dow dividend stocks yielding at least 2% as of Feb. 14 – Chevron (), Coca-Cola (), Johnson & Johnson (), McDonald's () and Merck () – has generated a total return (price appreciation plus dividends) of nearly 12% in 2022.

By comparison, the S&P 500's () year-to-date total return stands at negative 21%.

Given the success of our initial index, we decided to update the components for Q4 and beyond.

The Dow's top dividend stocks right now

Here's how we found the Dow's best dividend stocks to buy now. Using data from S&P Global Market Intelligence, we screened the blue-chip barometer for Wall Street analysts' highest-rated Dow components, but this time with dividend yields of at least 2.5%. (Rapidly rising interest rates – and the fact that the dividend yield on the Dow has vaulted to 2.3% from 1.8% a year ago – prompted us to screen for stocks with more attractive yields.)

A quick note on S&P Global Market Intelligence's ratings system: S&P surveys analysts' stock recommendations and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Any score equal to or below 2.5 means that analysts, on average, rate the stock at Buy. The closer a score gets to 1.0, the stronger the consensus Buy recommendation.

That led us to the following five Dow dividend stocks, which we list below by strength of analysts' consensus recommendations, from lowest to highest conviction. (Market data and analysts' ratings are as of Oct. 21.)

Three of the original five names remain the same, and only time will tell if our updated index performs as well as our initial index. But if this updated mini-portfolio comes anywhere close to delivering the same sort of outperformance as our first index, the best Dow dividend stocks will once again demonstrate their value in uncommonly uncertain times.

5. Chevron

  • Market value: $339.0 billion
  • Dividend yield: 3.3%
  • Analysts' consensus recommendation: 2.14 (Buy)

High energy prices have the oil and gas industry swimming in cash, and Chevron has been no exception. The market has responded by bidding up shares by nearly 50% so far this year, and analysts see more upside ahead.

Wells Fargo Securities analyst Roger Read, who rates the stock at Overweight (the equivalent of Buy), says CVX is among the "best operated" integrated energy majors.

"We base this view on Chevron's track record of negotiating the extended commodity price volatility since 2014, navigating through the challenging COVID-era while preserving balance sheet strength and making adroit acquisitions, delivering on cash returns to shareholders via dividends and share repurchases, and delivering modest but consistent growth," Read writes.

And Read has plenty of company on the Street. Of the 29 analysts issuing opinions on the stock tracked by S&P Global Market Intelligence, 10 rate it at Strong Buy, six say Buy, 12 have it at Hold and one calls it a Sell.

4. Goldman Sachs

  • Market value: $111.0 billion
  • Dividend yield: 3.1%
  • Analysts' consensus recommendation: 2.00 (Buy)

Goldman Sachs () gets a consensus recommendation of Buy with fairly high conviction. Of the 26 analysts issuing opinions on the stock, 11 call it a Strong Buy, six say Buy, eight have it at Hold and one slaps a rare Strong Sell call on the name.

Shares in Goldman Sachs are off 15% for the year-to-date, but they are beating the broader market by 6 percentage points. More importantly, the stock has come to life lately, helped by the fact that the investment bank exceeded the Street's third-quarter earnings estimate by a wide margin.

Bulls applaud the bank's new profitability initiatives and argue the market is undervaluing their return potential.

"Goldman's relatively new senior management team has embarked on a series of initiatives to raise return on tangible equity, which has averaged roughly 11% in recent years, to at least 15%," writes Oppenheimer analyst Chris Kotowski, who rates shares at Outperform (Buy). "This effort has a strong possibility of success because the company has a strong franchise and there are multiple revenue, cost, and capital optimization strategies that can be implemented, but the market is still valuing the stock as though the returns will remain unchanged indefinitely."

3. Merck

  • Market value: $242.4 billion
  • Dividend yield: 2.9%
  • Analysts' consensus recommendation: 1.96 (Buy)

Merck stock is up by about a quarter so far in 2022 and analysts see more outperformance ahead for the healthcare stalwart.

Bulls say the pharmaceutical giant's extant blockbuster drugs and a promising pipeline of therapies under development are more than offsetting declines in pandemic-related sales.

"The impact of COVID-19 is largely in the rearview mirror, and while weaknesses persist, this is being offset by growth elsewhere from products like Keytruda and Gardasil," writes Mizuho Securities analyst Mara Goldstein (Buy).

Bears worry about Keytruda losing patent exclusivity in 2028, but bulls such as Argus Research analyst Jasper Hellweg (Buy) say such fears are overblown.

"The company continues to expand the reach of Keytruda through additional indications," Hellweg writes. "It is also on track to receive additional approvals for cardiovascular drugs by 2030."

Analysts as a group lean heavily toward bullishness on the name. Of the 25 pros issuing opinions on MRK tracked by S&P Global Market Intelligence, 11 call it a Strong Buy, four say Buy and 10 have it at Hold.

2. Coca-Cola

  • Market value: $242.0 billion
  • Dividend yield: 3.2%
  • Analysts' consensus recommendation: 1.85 (Buy)

When it comes to finding the best stocks for a bear market, few names in the defensive consumer staples sector can match Coca-Cola.

Shares are beating the broader market by about 15 percentage points in 2022, and analysts see more outperformance ahead.

KO was hit hard by pandemic lockdowns, which shuttered restaurants, bars, cinemas and other live venues. But those sales are now bounding back. Analysts likewise praise Coca-Cola's ability to offset input cost inflation with pricing power.

"Over the past few years, there has been a greater sense of urgency for the company to generate outsized growth by investing behind its winning brands, entering into new categories, rationalizing its portfolio and quickly cutting ties with brands that were not gaining traction," writes Wedbush analyst Gerald Pascarelli, who initiated coverage of the stock at Outperform in mid-October. "KO continues to generate the fastest revenue growth, the best pricing and consistent market share gains."

Pascarelli has plenty of company on the Street, which gives KO a consensus recommendation of Buy, with high conviction. Twelve analysts rate Coca-Cola's stock at Strong Buy, seven say Buy, six have it at Hold and one says Sell, per S&P Global Market Intelligence.

1. Home Depot

  • Market value: $282.1 billion
  • Dividend yield: 2.8%
  • Analysts' consensus recommendation: 1.84 (Buy)

Home Depot () has long been a way to play the housing market and discretionary consumer spending in general. With the former in a slump and fears mounting over the health of the latter, it's easy to understand why shares are off by a third in 2022.

Analysts see the drawdown as overdone, however, and say it affords investors a chance to buy a quality name at a great price. Indeed, the Street gives HD a consensus recommendation of Buy, with high conviction. Of the 32 analysts issuing opinions on shares, 16 call them a Strong Buy, six say Buy, nine have them at Hold and one says Sell.

Interestingly, Home Depot is less sensitive to mortgage rates than most investors believe, notes Argus Research analyst Christopher Graja (Buy).

"In any year, only about 5% of the nation's 130 million housing units are sold," the analyst writes. "The vast majority of HD customers aren't looking at mortgage rates. And when they do, they tend to stay put with their locked-in rates and initiate home improvement projects."

With an average target price of $354.90, analysts give HD stock implied upside of around 29% in the next 12 months or so. Add in the dividend yield, and the implied total return easily tops 30%.

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