5 Best Dow Dividend Stocks of 2010

BOSTON (TheStreet) -- The Dow Jones Industrial Average, an index of the 30 largest publicly traded U.S. companies, has advanced 7.8% so far in 2010, lagging behind the S&P 500 Index and Nasdaq Composite. Still, several of its members have delivered outstanding gains, with less risk and volatility than small- and mid-cap stocks. Here are the five best-performing Dow dividend stocks of 2010. They may continue to outperform the broader market in 2011. Below, the stocks are ordered by year-to-date return, from good to great.

5. Disney ( DIS), the entertainment company known for Mickey Mouse, has grown 12-month sales 5.3% and net income 20%. Its stock has risen 15% year-to-date, ranking as the fifth best-performing Dow stock. It has jumped 11% in the past three months

Fiscal fourth-quarter profit declined 6.7% to $835 million and earnings per share fell 8.5% to 43 cents. Sales narrowed 1.3%. But, the gross and operating margin remained steadfast at 20% and 16%.

Disney trades at parity with peers, based on its cash flow multiple of 11. However, Disney's forward earnings multiple of 13, book value multiple of 1.9 and sales multiple of 1.8 reflect discounts of 27%, 63% and 18% to respective media industry averages.

TheStreet's stock model rates Disney "buy" with a $46.20 target, suggesting 24% upside.

4. Boeing ( BA) is an aerospace and defense company, known for its aircraft. Its stock has gained 20% in 2010, ranking as the fourth best-performing Dow stock. It has climbed 4.4% in three months.

Boeing swung to a third-quarter profit of $837 million, or $1.12 a share, from a year-earlier loss of $1.6 billion. Revenue inched up 1.7%. The gross margin extended from 16% to 22% and the operating margin climbed from negative territory to 7.9%. Boeing has $10 billion of cash and $12 billion of debt.

Its stock sells for a forward earnings multiple of 14 and a cash flow multiple of 9.4, modest peer discounts.

TheStreet's stock model rates Boeing "hold," awarding the company an outstanding financial strength score of 9.4 (out of 10), but a weak growth score of 4.9.

3. McDonald's ( MCD) is the world's largest restaurant company. Its stock has returned 27% in 2010 and has rallied 6.6% in three months.

Third-quarter net income increased 10% to $1.4 billion and earnings per share expanded 12% to $1.29, boosted by a smaller float. Revenue ascended 4.3% to $6.3 billion. The gross margin extended from 45% to 46% and the operating margin widened from 31% to 33%. McDonald's carries $2.5 billion of cash and $11 billion of debt, converting to an ample quick ratio of 1.1 and a debt-to-equity ratio of 0.8.

Though expensive when considering book value and sales per share, the stock's forward earnings multiple of 16 reflects a 44% industry discount.

TheStreet's stock model rates McDonald's "buy" with a $102.77 target, implying 30% upside.

2. DuPont ( DD) is a science and technology company, known for selling chemicals.

Third-quarter net income dropped 10% to $367 million and earnings per share fell 11% to 40 cents, hurt by a higher share count. Revenue increased 14%. DuPont's gross margin decreased from 33% to 28% and its operating margin contracted from 9.3% to 7.2%. DuPont held $6 billion of cash and $12 billion of debt at the end of the quarter, translating to a quick ratio of 1.5 and a debt-to-equity ratio of 1.3.

Its stock sells for a forward earnings multiple of 14, a sales multiple of 1.4 and a cash flow multiple of 11, peer discounts of 22%, 46% and 23%.

TheStreet's stock model rates DuPont "buy" with a $61.10 target, suggesting 26% upside.

1. Caterpillar ( CAT) makes construction and mining equipment. Its stock has surged 53% in 2010 and has advanced 28% in the past three months, helped by rapid growth in emerging markets.

Third-quarter profit nearly doubled to $792 million, or $1.22 a share, as revenue soared 53%. The gross margin declined from 36% to 35%, but the operating margin rose from 11% to 15%. Caterpillar has $2.3 billion of cash and $29 billion of debt, converting to a quick ratio of 0.9 and a debt-to-equity ratio of 2.9.

Its stock trades at a forward earnings multiple of 15, a 26% discount to the machinery industry average. It's expensive based on book value per share.

TheStreet's stock model rates Caterpillar "buy" with a $111.04 target, implying 27% upside.

-- Written by Jake Lynch in Boston.

To see these stocks in action, visit the 5 Best Dow Dividend Stocks Portfolio on Stockpickr.

RELATED STORIES:


Become a fan of TheStreet on Facebook.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

More from Investing

Here Is Your Market Playbook During This Tariff-Driven Selloff

Here Is Your Market Playbook During This Tariff-Driven Selloff

Dropbox Is the New Defensive Stock to Own With the Market Falling Apart

Dropbox Is the New Defensive Stock to Own With the Market Falling Apart

The Quick Answer Why Trump's Trade War Makes Stocks at Least 10% Overvalued

The Quick Answer Why Trump's Trade War Makes Stocks at Least 10% Overvalued

Marriott CEO on Tax Cuts, Trade War Worries and China's Economy

Marriott CEO on Tax Cuts, Trade War Worries and China's Economy

50 Stocks Goldman Sachs Thinks Can Triumph Over Wage Inflation

50 Stocks Goldman Sachs Thinks Can Triumph Over Wage Inflation