5 High Dividend Dow Stocks to Own

By Karen Rogers - June 12, 2012 | Tickers: MMM, CAT, XOM, IBM, MCD | 0 Comments

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If Nasdaq is the Ferrari of the exchange world, then the Dow must be the family station wagon.  True, it’s not flashy or cool but you can count on it to get you where you financially want to go, no matter how bumpy the ride.

The five stocks listed below were selected based on their financial strength and market capitalization.  To be considered for the list, each stock had to:

1. Have a return on invested capital of 10% or higher, based on the company’s five-year historical cash flows;
2. Show a positive return (including dividends) over the past 10 years;
3. Have cash flows that supported dividend payments; and
4. Have a market capitalization of $50 billion or higher.

Return on invested capital was selected as criteria because it tells investors just how efficient a company is at using its assets to make a profit.  The stocks are ranked by their return on invested capital starting from lowest to highest.

#5 Caterpillar (NYSE: CAT) -- Return on Invested Capital: 14.27%; Dividend Yield: 2%.

Cat’s growth is dependent on the world’s economic health, and this heightened risk explains why Caterpillar has a high beta of 2.03. Although the company manufactures mining equipment, diesel-electric locomotives and other heavy duty vehicles, it is best known for the heavy equipment found on construction sites.  Some analysts have recently upgraded the company from neutral to buy, but this could change if the recent uptrend in world construction starts to decline.  The company has a market cap of $56.64 billion and the stock trades for around $88.00.

#4 McDonald’s (NYSE: MCD) -- Return on Invested Capital: 20.90%; Dividend Yield: 3.19%

McDonald’s has engrained itself into American culture and spread the Golden Arches around the world.  Like its fast food competitors, the company must contend with commodity inflation and a slim profit margin.  Taking all that into consideration makes Mickey D’s return on invested capital all the more impressive.  In May 2011, McDonald’s announced that their comparable worldwide sales were up 3.3%.  The company has a market cap of $89.18 billion and the stock sells for around $88.00.

#3 3M (NYSE: MMM) -- Return on Invested Capital: 21.46%; Dividend Yield: 2.74%

You can’t mention “Post-its” without 3M immediately coming to mind.  This worldwide conglomerate recently announced that their first quarter 2012 income came in at $1.13 billion, which represented a 5% increase over the same quarter in 2011.  Despite this increase and the company’s revised 2012 improved outlook, 3M continues to underperform the Dow this year.  The company has a market cap of $59.67 billion and stock price is around $86.00.

#2  ExxonMobil (NYSE: XOM) -- Return on Invested Capital: 25.44%; Dividend Yield: 2.82%

What’s not to love about a company that posted total global earnings of $9.5 billion in the first quarter of 2011?  The company distributed more than $7 billion of that to shareholders in the form of dividends and share purchases.  Despite the recent drop in oil prices to around $85 a barrel, Exxon recently announced that stockholders would see a 20% dividend increase paid to them in the second quarter.  The company has a market cap of $378.02 billion and the stock trades around $80.00.

#1 International Business Machines (NYSE: IBM) -- Return on Invested Capital: 36.08%; Dividend Yield: 1.74%

Flashy tech stocks come and go but “Big Blue” just keeps rolling along.  2012 first quarter profits rose 7% to come in at $3.1 billion as compared to $2.9 billion in first quarter 2011.  The company saw their revenue jump by 10% in the BRIC – Brazil, Russia, India and China – countries despite weakening worldwide economic conditions. IBM has a market cap of $226.10 billion, and the stock price is around $195.00.

These “big blue” companies have an impressive track record of earning profits and, in turn, passing those profits along to their shareholders.  In difficult economic times, a steady source of dividend income can help nervous investors sleep well at night.

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