Should You Buy the 3 Highest-Paying Dividend Stocks in the Dow Jones?

The Dow Jones Industrial Average (^DJI +0.48%) is a bit of a strange index. It includes only 30 stocks, and the index is weighted by share price. Still, it has a long and storied history as a market gauge, with the companies in the index among the largest and most prominent in the world.

A common income-investing approach is to look at the highest-yielding stocks in the Dow, sometimes called the “dogs” of the index. Today, the highest-yielding stocks are Verizon (VZ 1.57%), Chevron (CVX 4.50%), and UnitedHealth Group (UNH +1.25%). Are any of these stocks, with yields of up to 5.6%, worth buying?

Verizon is the top “dog”

Verizon is the highest-yielding stock in the Dow, with a yield of 5.6%. It is one of the world’s largest communications stocks. It operates fiber optic networks, but its core business is providing cellular services. That said, subscriptions are the foundation of its operations. And since telecom customers don’t change service providers very often, Verizon has an annuity-like income stream supporting its lofty yield.

Image source: Getty Images.

The problem with Verizon is that it carries a lot of debt, which is actually normal for a telecom business. However, it limits the cash available for dividends, given the intense industry competition and substantial capital investment requirements. Dividend growth has been slightly below the historical inflation rate over the past decade. The yield is likely to make up the lion’s share of an investor’s return, and the buying power of the dividend will probably slowly decline over time. It is most appropriate for those looking to maximize the income they are generating today, but probably not a great long-term dividend holding.

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NYSE: VZ

Verizon Communications

Today’s Change

(-1.57%) $-0.79

Current Price

$49.41

Key Data Points

Market Cap

$212B

Day’s Range

$49.17 - $50.20

52wk Range

$38.39 - $51.68

Volume

929K

Avg Vol

32M

Gross Margin

45.79%

Dividend Yield

5.45%

Chevron is caught up in the oil price surge

Chevron is one of the world’s largest energy companies, and it is extremely well run. It currently offers an attractive 3.3% yield, and the dividend has been increased annually for more than a quarter of a century. Even conservative dividend investors would likely find Chevron a solid choice in the highly volatile energy sector, given its diversified business model and low leverage.

There’s just one problem that may hold some investors back. The geopolitical conflict in the Middle East has driven up energy prices. That’s not unusual or unexpected, given the events that are unfolding. However, as an energy company, Chevron’s stock has risen along with oil prices. If you want to buy an energy stock right now, Chevron is a good choice. However, if you wait for energy prices to pull back again, as they have after every previous oil price spike, you’ll probably end up with a more attractive entry point.

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NYSE: CVX

Chevron

Today’s Change

(-4.50%) $-9.32

Current Price

$197.58

Key Data Points

Market Cap

$413B

Day’s Range

$194.91 - $204.64

52wk Range

$132.04 - $214.71

Volume

1.2M

Avg Vol

13M

Gross Margin

14.66%

Dividend Yield

3.34%

United Health Group is dealing with known unknowns

UnitedHealth Group is one of the largest health insurance companies in the United States. It also operates a pharmacy benefits business, a health provider business, and an analytics business. Basically, it provides investors with exposure to a broad spectrum of healthcare services. Given the country’s aging demographics, UnitedHealth is likely to see strong demand. That’s the positive behind the stock and its attractive 3.3% yield.

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NYSE: UNH

UnitedHealth Group

Today’s Change

(1.25%) $3.39

Current Price

$273.98

Key Data Points

Market Cap

$246B

Day’s Range

$270.76 - $275.30

52wk Range

$234.60 - $606.36

Volume

5.4M

Avg Vol

9.8M

Dividend Yield

3.27%

The negative is that earnings have been volatile over the past couple of years, and regulatory scrutiny of the healthcare industry, and UnitedHealth in particular, appears to be on the upswing. It isn’t a bad company, but the yield is high for a reason, and the outlook is less than clear. Conservative dividend investors should probably watch this one from the sidelines.

Three high-yield Dow stocks and three different answers

Verizon is a tentative buy, but glacial dividend growth should probably keep long-term investors away. Chevron is a great energy stock, but high oil prices could be offering a temporary boost to the stock price. And UnitedHealth Group is an industry leader, but regulatory pressures cloud its future in worrying ways. When all is said and done, none of the three is a hand’s-down buying opportunity.