Key Points
- Verizon, Walgreens Boots Alliance and 3M are Dow components with higher-than-average yields, but all three companies have some challenges.
- Many high-yield stocks provide a consistent income stream, making them appealing to income-oriented investors.
- However, a high dividend yield may indicate a stock's undervaluation or signal financial distress.
- 5 stocks we like better than General Electric
Verizon Communications Inc. NYSE: VZ, Walgreens Boots Alliance Inc. NASDAQ: WBA and 3M NYSE: MMM are among the highest-yielding components of the Dow Jones Industrial Average.
Are these stocks that investors should consider now to generate income?
High-yielding stocks, known for attractive dividend payouts, offer investors both risks and rewards.
On the positive side, many of these stocks provide a consistent income stream, making them appealing to income-oriented investors.
When dividends indicate financial strength
Companies with a history of high dividend payouts tend to be financially stable, are well-established in their industries and their stocks are generally not very volatile. That means the stocks typically don’t offer the roller coaster ride you often find with younger growth stocks.
For example, blue-chip stocks like Johnson & Johnson NYSE: JNJ and Procter & Gamble Co. NYSE: PG increased their dividends for 66 years and 68 years, respectively.
The Johnson & Johnson dividend yield is 3.04%; Procter & Gamble’s dividend yield is 2.38%.
Those are both higher than the average yield of all Dow Jones stocks, which is about 2%.
However, in some cases, high yields come with inherent risks.
Stocks offering unusually high dividends, relative to their industries, may face challenges in sustaining those payouts during economic downturns or business disruptions.
High yield dividend stocks may indicate undervaluation or signal a company’s financial distress.
Here’s a look at three of the Dow’s top dividend payers, and whether these stocks are buys right now, or are better avoided due to risk.
High costs hurt Verizon’s share price
The Verizon dividend yield is currently 6.31%, and the company has a 19-year track record of increasing its shareholder payout.
The yield has increased significantly since late 2019, when it was at 4%, and the Verizon chart shows you why that’s happened: The stock has been in a long-term downtrend, although it’s rallied with the broader market since late October.
High costs of building its 5G network, high debt levels and decreasing revenue in 2023 hurt the company’s stock price. Any time you see a company with a high debt burden, keep in mind: Rising interest rates will take a bite from earnings, and that’s exactly what happened.
Verizon earnings declined in 2022 and 2023, and analysts expect that trend to continue this year.
An earnings rebound is expected in 2025, and revenue has been stabilizing as new customers sign on. For investors seeking yield, Verizon is forecast to remain profitable, and growth is returning, although investors may need some patience.
Walgreens Boots Alliance no longer dividend aristocrat
The Walgreens dividend yield is 8.48%, which is an immediate clue that something is amiss.
The Walgreens chart also indicates a pretty big problem. The stock has been on a long downtrend that began way back in 2015. It’s down 34.87% in the past year, and the hemorrhaging has continued in 2024, even as the Dow has been advancing.
Walgreens recently lost its place on the list of dividend aristocrats, or companies that increased their dividend payments consecutively for at least 25 years.
After profitability fell sharply in 2023 and another drop is forecast for this year, the company slashed its dividend to $1 per share from $1.92 per share.
The stock may not be much longer for the Dow. It has the lowest price in the price-weighted index, and the smallest market capitalization, at $19.52 billion.
Since joining the Dow in June 2018, replacing long-time stalwart General Electric NYSE: GE, Walgreens Boots Alliance stock is down 66%.
The stock may seem attractive to investors who want yield, but it’s been among the worst performers among consumer staples stocks even as the broader sector has been rallying since the start of the year. In other words, investors have better choices.
Analysts see 3M earnings on the rise
The 3M dividend yield is 6.32%, and the company has a 66-year history of boosting its shareholder payout.
The 3M chart shows the decline beginning in 2018; the stock is down nearly 9% in the past five years. Th that price decline plays a large role in 3M’s extraordinarily high yield. 3M stock is down 13.22% in 2024.
So what’s behind that price drop? Year-over-year revenue declined in 2022 and 2023; the three-year revenue growth rate is -1%.
Like many technology stocks, 3M is suffering from a post-pandemic hangover. The company had a federal government contract to sell respirators; earnings spiked in 2021, but declined in the subsequent two years.
A $6 billion legal settlement surrounding earplugs for the U.S. military didn’t help earnings.
There may be a bright spot, as analysts see earnings growing by 4% this year and by another 7% in 2025.
3M analyst forecasts show that Wall Street isn’t yet sanguine about the stock’s prospects, despite the anticipated earnings increases.
As the stock remains profitable and the company is committed to continuing dividend increases, 3M may be a more stable yield choice than stocks of companies whose underlying financials are weaker.
Before you consider General Electric, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and General Electric wasn't on the list.
While General Electric currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
Looking to avoid the hassle of mudslinging, volatility, and uncertainty? You'd need to be out of the market, which isn’t viable. So where should investors put their money? Find out with this report.
Get This Free Report
