The Dow Jones Industrial Average (^DJI +0.48%) is an unusual index that comprises only 30 stocks, weighted by their share price. Despite this, it boasts a rich history as a market indicator, featuring some of the largest and most notable companies globally.
A popular strategy for income investing involves focusing on the highest-yielding stocks in the Dow, often referred to as the “dogs” of the index. Currently, the top-yielding stocks include Verizon (VZ 1.61%), Chevron (CVX 4.50%), and UnitedHealth Group (UNH +1.29%). Are any of these stocks, with yields reaching up to 5.6%, worth the investment?
Verizon: The Leading “Dog”
Verizon holds the title for the highest yield in the Dow at 5.6%. As one of the largest communication companies globally, it provides cellular services primarily through fiber optic networks. Subscriptions are key to its operations, giving Verizon a reliable revenue stream, as telecom customers tend to remain loyal to their providers.
However, Verizon faces significant debt, a common characteristic in the telecom industry, which limits available cash for dividends amid fierce industry competition and hefty capital expenditures. Over the past decade, its dividend growth has lagged behind historical inflation rates. For investors aiming for immediate income, it could be suitable, but it might not be a wise option for long-term dividend growth.
Chevron: Benefiting from Oil Price Increases
Chevron ranks among the top energy corporations globally and is effectively managed. Its current yield stands at 3.3%, with a history of consistent annual dividend increases for over 25 years. Conservative dividend investors would likely find Chevron a robust pick in the volatile energy sector due to its diversified approach and low debt levels.
Yet, a potential drawback for buyers is the ongoing geopolitical turbulence in the Middle East, which has pushed energy prices higher. Chevron’s stock has surged alongside these prices. While it is a solid choice now, waiting for a dip in energy prices, as seen after previous surges, might offer a more favorable entry point.
UnitedHealth Group: Navigating Uncertainties
UnitedHealth Group is a leading health insurance provider in the U.S., also involved in pharmacy benefits, health services, and analytics. The increasing demand stemming from an aging population supports its attractive 3.3% yield, making it appealing to investors.
Nonetheless, earnings have been unstable in recent years, and heightened regulatory scrutiny of the healthcare sector, particularly for UnitedHealth, could pose challenges. While not a bad company, the high yield reflects underlying concerns, and conservative investors may want to tread lightly here.
Summarizing Three High-Yield Dow Stocks
Verizon emerges as a tentative buy, though its slow dividend growth may deter long-term investors. Chevron is a reliable energy stock, but current high oil prices may reflect a temporary advantage. UnitedHealth Group, despite being an industry leader, faces regulatory uncertainties that cloud its future. Ultimately, none of the three stocks present a clear-cut buying opportunity.
