NEW YORK (TheStreet) -- The Dow Jones Industrial Average is made up of 30 blue-chip stocks, and it's weighted to represent the various industries in the U.S. economy in proportion. All 30 of those stocks pay dividends. We've systematically ranked them to show you the 10 best dividend stocks in the Dow.
The criteria we used (primarily drawn from The 8 Rules of Dividend Investing) were:
- Total return
- Payout ratio
- Dividend yield
- Historical growth rate
- Price-to-earnings ratio
- Stock price standard deviation & beta
Our aim was to find a particular type of equity: high-quality dividend growth stocks with strong competitive advantages suitable for long-term investors.
No. 10: Verizon Wireless
Verizon (VZ) is the largest U.S. telecommunications company in the United States, with a market cap of $192 billion.
Verizon Wireless has 34% market share of the U.S. wireless industry. Between them, Verizon, AT&T (T) , T-Mobile (TMUS) , and Sprint have captured more than 90% of the market. When an industry is controlled by only a few large players, there is not enough competition to drive down prices for customers. As a result, higher profits tend to accrue to the largest.
Verizon Wireless stands out from the other Dow stocks thanks to its high dividend yield of 4.6% -- it pays out 62% of its profits as dividends. The company has paid steady or increasing dividends for 31 consecutive years. This history and its leadership in the oligopolistic United States telecommunications industry make it likely shareholders will continue to see rising dividends.
Verizon Wireless recently announced it will acquire AOL (AOL) to enhance its mobile video offerings. AOL owns TechCrunch and The Huffington Post, among other high-quality Web sites, which is another of the driving rationales for the acquisition.
Verizon Wireless is expected to compound earnings-per-share at 8% a year going forward. Rising smartphone and data usage are the underlying growth drivers for Verizon. The company offers investors a 12.6% total return from dividends (4.6%) and growth (8%+).
One of the most appealing aspects of Verizon stock is its stable cash flows and low stock price standard deviation -- just 21.7% over the last decade. In addition, the company has a beta of 0.71. When the S&P 500 fell 38% in 2008, Verizon Wireless stock fell only 22.4%.
Verizon Wireless is a high-quality business, currently trading for a forward price-to-earnings ratio of 11.9. The company's stock appears undervalued given its solid expected growth rate, stability, and high dividend yield.