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10 Highest-Rated Dow Dividend Stocks

Coca-Cola, JPMorgan and Microsoft have some of the most favorable analyst ratings among Dow dividend stocks.
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BOSTON (TheStreet) -- Before you load up on bonds to prepare your portfolio for a double-dip recession, consider adding some Dow stocks, which are among the cheapest, safest and highest-yielding U.S. equities. Here are the 10 highest-rated Dow stocks, based on analysts' recommendations. They are ordered by percentage of "buy" ratings.

10.

Merck

(MRK) - Get Report

is a global drugmaker. Its second-quarter net income fell 52% to $752 million and earnings per share tumbled 68% to 24 cents, hurt by a larger float. Revenue soared 92%. The operating margin widened from 28% to 31%.

Merck's stock trades at a forward earnings multiple of 9.2 and a book value multiple of 2, 28% and 59% discounts to pharmaceutical industry averages. The shares pay a dividend yield of 4.3% with a safe payout ratio of 35%. Of analysts covering Merck, 18, or 69%, advise purchasing its shares and eight recommend holding them. None advocate selling. A median target of $39.73 suggests the shares could rise 13%.

9.

Chevron

(CVX) - Get Report

extracts and sells oil and gas. Its second-quarter profit more than tripled to $5.4 billion, or $2.70 a share, as revenue grew 30%. The operating margin extended from 7.4% to 14%.

Chevron's stock sells for a forward earnings multiple of 7.9, a book value multiple of 1.6 and a cash flow multiple of 5.4, 40%, 53% and 23% discounts to oil and gas peer averages. The shares pay a dividend yield of 3.7% with a safe payout ratio of 34%. Of researchers following Chevron, 18, or 72%, rate its stock "buy" and seven rate it "hold." None rate Chevron's shares "sell." A median target of $92.44 implies that a return of 20% lies ahead.

8.

Wal-Mart

(WMT) - Get Report

is the world's largest retailer. Fiscal first-quarter net income increased 10% to $3.3 billion and earnings per share gained 14% to 88 cents, boosted by a smaller float. Revenue increased 5.9%. The operating margin rose from 5.5% to 5.8%.

Wal-Mart's stock trades at a forward earnings multiple of 11 and a cash flow multiple of 8, 15% and 5% discounts to the averages for food and staples retailers. The shares pay a dividend yield of 2.4% with a safe payout ratio of 31%. Of firms that track Wal-Mart, 23, or 74%, recommend buying its shares and eight suggest holding them. A median target of $60.44 suggests a potential return of 18%.

7.

Hewlett-Packard

(HPQ) - Get Report

makes computer hardware. Its second-quarter profit increased 28% to $2.2 billion, or 91 cents a share, as revenue gained 13%. The operating margin rose from 9% to 10%.

HP's stock sells for a forward earnings multiple of 8.1, a book value multiple of 2.2 and a cash flow multiple of 7.4, 45%, 46% and 35% discounts to peer averages. Its PEG ratio, a measure of value relative to predicted long-run growth, of 0.3 signals a 70% discount to fair value. The shares offer a 0.7% dividend yield with a payout ratio of 90%. Roughly 76% of analysts covering HP rate its stock "buy." A median target of $58.41 implies a potential return of 43%.

6.

Bank of America

(BAC) - Get Report

is a financial services company. Second-quarter net income decreased 3% to $3.1 billion and earnings per share fell 18% to 27 cents, hurt by a larger float. Revenue declined 13%. The operating margin rose from 21% to 30%.

Bank of America's stock trades at a forward earnings multiple of 8.5, a book value multiple of 0.6 and a cash flow multiple of 1.2, 26%, 30% and 58% discounts to industry averages. The shares offer a modest 0.3% dividend yield. Of analysts covering Bank of America, 25, or 75%, advocate purchasing its shares and eight recommend holding them. A median target of $20.25 suggests a potential return of 53%.

5.

Cisco

(CSCO) - Get Report

makes networking equipment. Fiscal fourth-quarter profit surged 79% to $1.9 billion, or 33 cents a share, as revenue grew 27%. The operating margin increased from 18% to 21%.

Cisco's stock sells for a forward earnings multiple of 11, a 31% discount to the communications equipment industry average. Its PEG ratio of 0.6 reflects a 40% discount to estimated fair value. Cisco doesn't pay dividends. Of researchers evaluating Cisco, 38, or 79%, advise purchasing its shares and 10 suggest holding them. None advocate selling Cisco's stock. A median target of $28.16 implies that the shares could gain 28% in the months ahead.

4.

TheStreet Recommends

United Technologies

is an aerospace, defense and technology company. Its second-quarter profit increased 14% to $1.1 billion, or $1.20 a share, as revenue gained 5.6%. The company's operating margin remained steady at 14%.

United Technologies shares trade at a forward earnings multiple of 13 and a book value multiple of 3.3, 6% and 33% discounts to aerospace and defense industry averages. The shares pay a 2.4% dividend yield with a payout ratio of 39%. Of brokerages evaluating United Technologies, 15, or 79%, recommend purchasing its shares and four advise holding them. None rate the stock "sell." A median target of $83.83 implies a potential return of 20%.

3.

Microsoft

(MSFT) - Get Report

designs and sells software. Its fiscal fourth-quarter profit increased 48% to $4.5 billion, or 51 cents a share, as revenue grew 22%. The operating margin extended from 31% to 37%.

Microsoft's stock sells for a forward earnings multiple of 9.3 and a cash flow multiple of 8.8, 57% and 35% discounts to peer averages. Its PEG ratio of 0.9 signals a 10% discount to estimated fair value. The shares offer a 2.1% dividend yield with a conservative payout ratio of 25%. Roughly 80% of analysts covering Microsoft rate its stock "buy." A median target of $33.22 suggests a return of 34%.

Credit Suisse

(CS) - Get Report

expects the stock to rise 61% to $40.

2.

JPMorgan

(JPM) - Get Report

is a diversified financial services company. Its second-quarter net income increased 76% to $4.8 billion as earnings per share nearly quadrupled to $1.09. Revenue declined 4.7%.

JPMorgan's stock trades at a forward earnings multiple of 7.9 and a cash flow multiple of 2.3, 41% and 17% discounts to industry averages. The shares pay a 0.5% dividend yield with a payout ratio of 6%. Of researchers following JPMorgan, 28, or 88%, advocate purchasing its shares and four advise holding them. None rate the stock "sell." A median target of $53.11 implies 41% of upside.

Barclays

(BCS) - Get Report

predicts the stock will gain 59% to $60.

1.

Coca-Cola

(KO) - Get Report

makes syrups and beverages. Its second-quarter profit expanded 16% to $2.4 billion, or $1.02 a share, as revenue grew 4.9%. The operating margin widened from 30% to 33%.

Coca-Cola's stock sells for a forward earnings multiple of 15 and a cash flow multiple of 15, on par with beverage peer averages. The shares offer a 3.1% dividend yield with a reasonable payout ratio of 55%. Roughly 88% of analysts covering Coca-Cola advise purchasing its stock. A median target of $61.44 suggests a 10% return in the months ahead. The equity research group at JPMorgan values Coca-Cola at $66, leaving 17% of potential upside.

-- Reported by Jake Lynch in Boston.

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