The 8 highest-yielding dividend stocks in the Dow Jones

The Dow Jones Industrial Average is the oldest U.S. stock index and one of dividend investors’ favorite hunting grounds. While the index’s average yield hovers around 1.9% this year, the following names offer double that or more. High yield never comes for free, though. For some companies, it reflects stable cash flow and decades of unbroken dividend growth; for others, it’s more a result of a share-price decline and uncertainty about the business’s future. Which Dow Jones names are paying out the most today, and what’s really behind their yields?

Dividend yield is one of the first metrics investors look at when picking stocks. It expresses the ratio between the annual dividend and the current stock price, thus telling what percentage of the amount invested comes back to the investor as cash each year. This perspective carries particular weight with the Dow Jones. The index brings together 30 large, long-established U.S. companies, and 28 of them currently pay a dividend. Only $AMZN and $BA do not. The index contains several so-called dividend aristocrats and kings – companies that have raised their payouts for 25 or 50+ consecutive years, respectively.

The selection is drawn from the highest-yielding index members in the first half of this year and deliberately leaves out telecom giant Verizon $VZ, which, with a yield of around 5.6%, is the long-time index leader but whose analysis we’ve covered separately on Bulios. It also holds that dividend yield is fluid. It’s calculated from the current stock price, so when a name rallies sharply, its yield falls even if the dividend itself hasn’t changed at all. That’s exactly what happened this year with Johnson & Johnson $JNJ, UnitedHealth $UNH, and Coca-Cola $KO, whose shares have been rising strongly since the start of the year, pushing their yields below those of some other index members.

High dividend yield has two faces. The first group consists of companies that pay generous rewards thanks to strong, predictable cash flow. The second group consists of companies whose yields have been driven up by a falling stock price. In that case, we’re talking about a potential dividend trap, where an attractive number masks a weakening fundamental picture and the risk of a future payout cut. Today’s overview contains representatives of both camps, which is why, for each company, we look not only at the yield itself but also at the payout ratio, dividend coverage by free cash flow, and business-model sustainability.