The Dow Jones Industrial Average is one of the oldest and hallowed stock market indices in the world. Created in 1896, the Dow consists of 30 large-cap American companies, many of which pay dividends.
While many companies in the Dow are considered blue chips, they certainly aren't created equal, nor are all the industrial average's dividend stocks necessarily safe bets for dependable income. In
To help identify the best dividend growth stocks in the Dow and avoid the GEs of the world, research firm Simply Safe Dividends utilizes a Dividend Safety Score system that has caught more than 98% of dividend cuts in advance.
We'll use that system to take a closer look at nine Dow dividend growth stocks that appear positioned to reward shareholders with safe and solid payout expansion in the years ahead.
3M
Market value: $108.6 billion
Dividend yield: 3.0%
Consecutive years of higher dividends: 60
A member of the exclusive dividend kings list analyzed by Simply Safe Dividends, 3M (MMM, $183.76) not only boasts six centuries of dividend increases, but the industrial conglomerate also has made payouts for more than a century without interruption.
Tape, sealants, drug delivery systems, insulation and protection equipment are just some of the more than 60,000 products 3M sells in 200 countries around the world.
3M's success, dating back to 1902, is largely attributable to management's focus on innovation and products that play a critical role in customers' operations. In fact, about one-third of 3M's $32 billion of annual sales are derived from products the firm invented over the past five years.
In
With a reasonable payout ratio near 50% and an excellent investment-grade-rated balance sheet, 3M should be able to continue rewarding shareholders with healthy dividend growth, potentially near 10% per year if management delivers on their latest five-year plan.
Apple
Market value: $687.1 billion
Dividend yield: 2.1%
Consecutive years of higher dividends: 6
Down more than 35% from its all-time closing high in
Investors are rightly concerned by
With more than $230 billion in cash and marketable securities,
A low payout ratio below 25%, excellent cash-flow generation and a strong balance sheet should allow AAPL to continue growing its dividend at a double-digit clip for the foreseeable future.
For all of these reasons,
Boeing
Market value: $180.7 billion
Dividend yield: 2.6%
Consecutive years of higher dividends: 7
Boeing's (BA, $310.90) last three annual dividend raises clocked in at 20%, 20% and 30%, respectively. Such strength has been fueled by an ongoing boom in demand for commercial airplanes, which has resulted in Boeing's backlog topping 5,800 planes worth more than $400 billion.
As the world's largest aerospace manufacturer, Boeing's profitability should rise as it ramps up production to meet demand. Morningstar senior equity analyst
Given the extreme capital intensity and technological expertise required to design and manufacture airplanes, not to mention the numerous regulatory hurdles, Boeing should remain a force in this market for years to come.
Meanwhile, as the plane maker's earnings continue to grow at a double-digit clip, BA investors can likely expect at least 10% annual dividend growth in the years ahead. This dividend stock is in excellent financial shape, earning an A credit rating from
Home Depot
Market value: $193.4 billion
Dividend yield: 2.4%
Consecutive years of higher dividends: 9
Founded in 1978, Home Depot (HD, $168.61) is the largest home improvement retailer in the world with more than $100 billion in sales and more than 2,200 stores. Importantly for income investors, the retail giant has paid uninterrupted dividends for more than three decades while growing its payout by 24% annually over the past five years.
In a retail world that is increasingly under pressure from the unabated rise of e-commerce, Home Depot continues to hold its own. The company's same-store sales last quarter were up nearly 5%, and earnings per share grew 36%.
Home Depot serves a mix of do-it-yourself consumers and professional contractors who depend on the store having the products to meet their needs in a timely manner. Thanks to its status as the largest player in the space, Home Depot can afford to hold one of the broadest arrays of products at competitive prices.
While the pace of new store openings has slowed (management expects just three new store openings in fiscal 2018), management continues investing in Home Depot's existing store base and technology systems to remain competitive.
In fact, Argus analyst
Home Depot's payout ratio is expected to be close to 40% in 2019, about in line with its long-term norm. With analysts expecting earnings growth in the high single digits, HD's dividend growth should remain strong for the foreseeable future.
Intel
Market value: $211.2 billion
Dividend yield: 2.7%
Consecutive years of higher dividends: 4
Intel (INTC, $44.49) is the behind-the-scenes technology giant responsible for powering many of the world's computers and data centers. Since incorporating in 1968, Intel has invested heavily to maintain one of the most complex manufacturing processes in the world, consistently producing microprocessor chips that delivered superior performance and cost advantages compared to rivals.
Intel routinely invests more than 20% of its sales in R&D to maintain its edge, and management has focused increasingly on expanding the company's reach beyond PCs. Intel believes its total addressable market exceeds $300 billion today, spread across various connected devices and networks, data centers, the cloud and the internet of things.
While the continued rise of mobile devices is weighing on growth prospects for personal computers, Intel's core legacy business, Morningstar senior equity analyst
While Intel has a mere four-year streak of dividend growth, the company has improved its payout in every year but one since 2004.
Overall, Intel's earnings are expected to grow at a mid-single-digit pace in 2019. Combined with the firm's excellent balance sheet and sub-30% payout ratio, its lowest level in more than a decade, INTC's dividend appears well-positioned to continue growing at a healthy pace.
McDonald's
Market value: $137.0 billion
Dividend yield: 2.7%
Consecutive years of higher dividends: 43
Approximately 37,000
Meanwhile,
Thanks to its premier locations, rigorous restaurant standards, well-known brand and continued adaptation of its menu to meet changing consumer tastes,
Going forward, management seeks to deliver 3% to 5% annual sales growth, an operating margin in the mid-40% range and earnings per share growth in the high single digits.
Merck
Market value: $197.7 billion
Dividend yield: 3.0%
Consecutive years of higher dividends: 7
However, something appears to be changing as
Morningstar sector director
Specifically, Morningstar believes Keytruda,
When combined with
Nike
Market value: $117.8 billion
Dividend yield: 1.2%
Consecutive years of higher dividends: 17
As Argus analyst
In fiscal 2018,
Thanks to this spending, along with
Visa
Market value: $300.0 billion
Dividend yield: 0.8%
Consecutive years of higher dividends: 10
As a leading global payments company,
Morningstar senior equity analyst
Global digital payments surpassed cash payments for the first time two years ago, and Horn believes
Growing consumer spending should increase the amount of spending flowing through
Brian Bollinger is a Contributing Writer at Kiplinger.