High dividend yields can be a warning sign for investors. Yields generally correlate negatively with stock price movements, after all, so higher yields often reflect a business' underperformance and investors' lack of confidence in its rebound potential. There are real dangers, in other words, involved in trying to boost your returns by reaching for yield.
One popular tactic that investors use in an attempt to minimize those risks is to focus on high-quality companies that might just be going through rough patches. That's the thrust behind the "Dogs of the Dow" strategy, which involves purchasing the 10 highest-yielding stocks in the Dow Jones Industrial Average(DJINDICES: ^DJI) at the start of the year and holding onto them till the start of the next. Following that strategy has a two-fold benefit: It puts you into stocks with unusually high dividend yields, and it keeps you away from stocks that have rallied so much that they may carry potentially excessive premiums.
Here's a look at the Dow's 10 highest dividend yields as we head toward the end of 2025. Keep in mind that an investor could earn a 1.8% yield by owning an index fund that tracked the whole 30-company index.
| DJIA Dividend Payer | Yield | DJIA Dividend Payer | Yield |
|---|---|---|---|
| Verizon Communications(NYSE: VZ) | 6.7% | Coca-Cola | 3% |
| Chevron(NYSE: CVX) | 4.3% | Amgen | 2.8% |
| IBM(NYSE: IBM) | 3.2% | Cisco Systems | 2.8% |
| Merck & Co. | 3% | Procter & Gamble | 2.4% |
| Johnson & Johnson | 3% | 3M | 2.4% |
Source: Yahoo! Finance.
Verizon calling
Verizon looks like the most tempting income-investment option, with a yield that's approaching 7%. The telecom giant hasn't simply trailed the market in 2024, though. Its shareholders have been losing ground for years. Many factors have combined to keep its total returns low, including the fact that consumers are holding onto their smartphones for much longer these days. It's also difficult to boost sales in the competitive and largely saturated market for wireless and broadband services.
Most Wall Street pros expect Verizon's revenue to rise by less than 1% this year and by less than 2% in 2025. Still, those figures don't describe a broken business model, and Verizon is likely to continue paying hefty dividends in the coming years.
Chevron fuels up
Chevron has a lot going for it as an income investment. The oil company's highly efficient business produced nearly $10 billion of operating cash flow last quarter despite falling gas prices. It returned $8 billion to shareholders in the period as well -- $3 billion via dividend payments and the remainder through stock buybacks.
Continued growth on both fronts should be powered by the company's rising oil production thanks to drilling projects in places like Kazakhstan and the Gulf of Mexico. However, investors considering buying this energy stock should be aware that its short-term returns will be highly dependent on the unpredictable swings in oil prices.
Is IBM worth the price?
IBM's stock is beating the market through mid-November this year, even though the tech giant just announced lackluster results for the third quarter. Revenue rose just 2% on a constant-currency basis. Pre-tax earnings underwhelmed, too, with its profit margin landing at 5.5% for the first three quarters of the year, down from 11.1% in the prior-year period.
The pressures faced by its massive business mostly came from weaker discretionary spending in areas like consulting services and a hardware segment that's in the midst of transitioning to the next generation of mainframe products. Buying IBM stock today is more of a bet on its attractive software and AI services businesses, which have long runways for growth ahead. As a result, I'd recommend investors consider taking advantage of the recent price drop in this tech stock, which now yields just over 3%.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $23,818!*
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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of November 11, 2024
Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron, Cisco Systems, and Merck. The Motley Fool recommends 3M, Amgen, International Business Machines, Johnson & Johnson, and Verizon Communications. The Motley Fool has a disclosure policy.
