Investing

Dividend Shock: Over Half of DJIA Blue Chips Outyield 10-Year Treasury

Several things are taking place ahead of the end of May, and the number of pundits getting more worried about the markets seems to be on the rise. The problem is that there are just as many bullish indicators as there are bearish ones — even with the 10-year Treasury yield down close to 2.50% and the 30-year Treasury yield down close to 3.38%. It turns out that many Dow Jones Industrial Average (DJIA) stocks yield more than the 10-year Treasury, and a handful outyield the long bond.

Now that the S&P 500 Index and the DJIA have hit new all-time highs in the past couple of weeks, many investors still want the upside from stocks without too much risk. Many investors are flocking to blue chips for their dividend yields and perceived safety due to their size.

Now get this for big dividends. Of the 30 Dow stocks, 17 are yielding more than the 10-year Treasury, and another three are so close that they will outyield the 10-year if their price drops 2% or so. Also of the 30 DJIA stocks, five outyield the 30-year Treasury, and another two are so close in yield that a 2% to 3% drop would put them above that yield.

24/7 Wall St. has highlighted top 20 yields of the DJIA (see table below), screened with a market cap and with a yield. We then screened the top six yields in general, but only by the top one of each sector to avoid duplication or excessive concentration.

AT&T Inc. (NYSE: T) comes with a $188.8 billion market cap, yet the 5.06% yield crushes that of the second best DJIA of 4.31% from Verizon. With AT&T spending close to $50 billion for DirecTV, we just analyzed whether its dividend was safe for remaining static and being raised. Trading at $35.50, it has a consensus price target of $36.21, and the 52-week range is $31.74 to $37.24.

Pfizer Inc. (NYSE: PFE) comes with a $186 billion market cap, and its 3.55% dividend yield trumps the rival DJIA yield of 3.12% from Merck. Pfizer is a wild card due to its AstraZeneca merger ambitions, although this would slash its effective tax rate handily. It is trading at $29.25, and the consensus price target from analysts is $33.97. The 52-week range is $27.12 to $32.96.

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Chevron Corp. (NYSE: CVX) has a $234 billion market cap, about $200 billion less than that of Dow rival Exxon, but its yield of 3.48% handily trumps the 2.74% yield of Exxon. Be advised that these companies both recently raised their dividends, so this comparison is a bit in flux at this moment. Chevron’s $122.50 share price makes it more important than Exxon in the DJIA daily change weightings. Its consensus price target is $131.00, and its 52-week range is $109.27 to $127.83.

Intel Corp. (NASDAQ: INTC) is the king of technology with a 3.46% yield, but its $129 billion market cap has fallen under many of the new and old tech giants now. Intel clobbers Cisco’s 3.12% yield and the 2.82% yield from Microsoft. Intel’s low share price keeps it from being highly relevant to daily gains or losses in the DJIA. Intel’s share price of $26.04 compares to a consensus analyst target of price of $26.86 and to a 52-week range of $21.89 to $27.24.

General Electric Co. (NYSE: GE) is the king of industrials and conglomerates on the DJIA. It has a $266 billion market cap and a 3.31% yield. Unfortunately, its low share price of less than $30 makes the stock almost unimportant to the Dow gains or losses directly on a daily basis. Still, GE is about to spin out its consumer finance unit and it is a company that acts as an economic barometer. At $26.30, it has a consensus price target from analysts of $28.90, and the 52-week range is $22.76 to $28.09.

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Procter & Gamble Co. (NYSE: PG) leads the consumer product companies with its $216 billion market cap. It also comes with a dividend yield of 3.22%, making it the seventh highest yield of all 30 DJIA stocks. P&G trades at $80.23, and its consensus analyst price target of $87.32 compares to a 52-week range of $73.61 to $85.82.

It is not unusual for many of the DJIA stocks to outyield the longer-dated treasuries, but this is impressive when you consider that many of stocks are close to all-time or multiyear highs and that Treasury yields have come down of late. The rest of the DJIA stocks outyielding the 10-year Treasury are shown in the table below. The yield montage and market caps were taken from FINVIZ and the consensus prices were taken from Thomson Reuters.