the Dow Jones Industrial Average (DJI: ^DJI) Contains 30 industry-leading ingredients that serve as representatives of the US economy. The index’s rich history has made it a favorite for investors looking for high-quality names that can help them generate dividend income.
Over time, the composition of the Dow Jones has changed to reflect the increasing impact of technology on the economy, which has helped the Dow Jones achieve impressive gains in recent years. But even Dow Jones-laden names like… coca cola, Home Depotand McDonald’s It’s done The roar has been louder in recent months It helped the index achieve a new all-time high on October 11.
Despite the Dow’s track record, not every item had a high yield or was a trustworthy stock. BoeingA series of challenges faced by the company pressured the suspension of its dividend. Technology stocks such as Microsoft, appleand Sales force It has returns of less than 1%, and Amazon Doesn’t pay dividends.
Johnson & Johnson (NYSE: GING), Dao (NYSE: Dow)and Chevron (NYSE: CFX) They are three of the highest-returning stocks in the index. Investing $2,500 in each stock produces an average return of 4.2% and should generate passive income of at least $300 per year. That’s why all three Dividend stocks Worth buying now.
J&J has dealt with significant challenges over the past few years
Johnson & Johnson (J&J) is the dividend king with 62 consecutive years of dividend increases. The company has long been known as a passive income powerhouse. But the past few years have been full of challenges, as evidenced by the decline in its share prices.
Johnson & Johnson has been a leader in developing COVID-19 vaccines, which was initially a boon for the company. But the rapid decline in demand for the vaccine has been such a drag for the company that Johnson & Johnson is now reporting many of its results as “excluding the impact of the COVID-19 vaccine.”
Another challenge is adjusting to the spin-off of Johnson & Johnson’s consumer health business, which occurred in August 2023. Previous Johnson & Johnson brands, such as Band-Aid and Tylenol, are now under the new entity. Kinview. This offering should help J&J become a faster-growing company by focusing on just two sectors – Innovative Medicine and MedTech. However, it removes some of the safe and distressed parts of the business that have made Johnson & Johnson such a strong dividend stock, regardless of the economic cycle.
Finally, Johnson & Johnson is dealing with lawsuits alleging that its talc-based products led to the development of cancer. Johnson & Johnson restructured and created a subsidiary called Red River Talc LLC, which filed for Chapter 11 bankruptcy on September 20 to handle current and future claims.
After a chaotic few years, Johnson & Johnson is finally ready to turn the corner. The company has delivered strong results and is growing at a rate that should support good, if not excellent, earnings growth in the future. J&J generates a significant amount of free cash flow that easily covers its dividend expense. With a yield of 3.1%, Johnson & Johnson stands out compared to… Standard & Poor’s 500 The dividend yield is only 1.2%
The Dow Jones Index is the coiled spring of economic growth
Not to be confused with the “Dow” in the Dow Jones Industrial Average, Dow manufactures chemicals used in plastics, seals, foams, gels, adhesives, resins, coatings, and more. The commodity chemicals company has three main segments – Packaging and Specialty Plastics, Industrial Intermediates and Infrastructure, and Performance Materials and Coatings.
Dow’s business model is capital intensive and is vulnerable to fluctuations in global demand and supply. The Dow Jones has been hit hard by low trading volume and low margins. In the following chart, you can see that revenues and margins were up in 2021 and early 2022 but have declined significantly since then. Likewise, the stock price has gone virtually nowhere since the offering.
Dow has blamed macroeconomic factors as the main reason for its weak results. However, lower interest rates can greatly benefit many of a company’s end markets. For example, lower mortgage interest rates could boost demand for housing, which would help Dow’s polyurethane and construction chemicals businesses. Lower interest rates could also boost demand for durable goods.
Overall, Dow is well positioned to see a significant rise in earnings next year. Analyst consensus estimates are for just $2.26 in earnings per share (EPS) in 2024 but $3.55 in 2025 per share. Although the Dow Jones looks expensive based on trailing earnings, it would have a much more reasonable valuation if it meets expectations.
Despite the Dow’s volatile performance, it has proven to be a reliable income stock to emerge from DowDuPont in 2019. The Dow yields 5.2%, making it the second-highest-yielding stock in the Dow Jones, behind only Verizon Communications. Dow has not raised its payout since the offering, but has included stock buybacks as part of a capital return program. The company’s goal is to return 65% of profits to shareholders through buybacks and dividends so that it has enough dry powder to fund long-term investments in new production plans, low-carbon efforts and more.
Overall, the Dow Jones is a good value stock that investors should consider now.
High-quality, high-yielding energy stock
Like Dow, Chevron can be a highly cyclical company and its results are heavily influenced by commodity prices. But Chevron has a strong balance sheet, a diversified exploration and production business that is not dependent on a single production area, a huge refining business, and a track record of increasing its profits regardless of oil prices.
In fact, Chevron has paid and raised its dividend for 37 consecutive years. Chevron’s yield is 4.3%, the third highest yield in the Dow Jones. The company’s record of increasing dividends, coupled with its high yield, makes it undoubtedly the best passive income of the 30 Dow Jones components.
Investors concerned about falling oil prices can take solace in knowing that Chevron has a large margin for error in supporting its earnings. Chevron’s capital expenditures and buybacks are near five-year highs. If oil prices decline, Chevron can simply halt buybacks and pull back on capital expenditures. Chevron didn’t cut its dividend when oil prices collapsed in 2020, so it stands to reason that it would take a long period of downturn for the company to consider cutting its dividend.
Chevron stands out as a balanced buy for investors looking for a safer way to invest in oil and gas and enhance their passive income stream.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daniel Fulber He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Chevron, Home Depot, Kenvue, Microsoft, and Salesforce. The Motley Fool recommends Johnson & Johnson and Verizon Communications and recommends the following options: long January 2026 $13 calls on Kenvue, long January 2026 $395 calls on Microsoft, and short January 2026 $405 calls on Microsoft. The Motley Fool has Disclosure policy.
All it takes is investing $2,500 in each of these three high-yielding Dow Jones stocks to help generate more than $300 in passive income annually. Originally published by The Motley Fool