The Dow's Best Dividend Stocks

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is packed to the rafters with top-notch businesses. And every single one of these elite 30 stocks pays a dividend today. The combination of proven top-shelf quality and often lengthy dividend histories makes income investors drool over the Dow's ticker list. But how can you tell the best dividend stocks apart from the merely great ones?

Let's look at the problem from a couple of different angles.

If you're close to retirement, or even enjoying your golden years already, you're likely to care more about a hefty dividend yield today than about long-term growth prospects. From this perspective, the choice is pretty easy: Go with one of the Dow's rich-yielding telecom giants.

At 5.1%, AT&T (NYSE: T  ) offers the most generous yield on the Dow today. Verizon Communications (NYSE: VZ  ) isn't far behind with its 4.2% yield. The steady revenues and cash flows of mature subscription services like these voice and data giants lend themselves to massive payouts. Ma Bell and Big Red may duel one another and a bevy of smaller rivals to keep their subscriber lists stable or even growing, but most of the high growth is already behind them. They really have nothing better to do with their massive cash flows than turn them right back at shareholders via buybacks and dividends. You know what you're getting, and these dividend stocks beat the pants off any savings account or CD certificate you'd care to mention. For relatively short-term income needs, the telecoms are hard to beat.

Younger investors with longer time horizons need to take other factors into account. That's when the telecoms start to drop off the radar. AT&T has increased its payouts by an annual average of 4.5% over the last decade, and Verizon's average boosts land at just 2.9%. They rank 22nd and 23rd, respectively, out of the 30 Dow components in terms of average dividend increases. The Dow's average raise is about 10% a year. To see how these differences work out for long-term investors, compare and contrast these mild payout bumps to that of Dow-average performer Coca-Cola (NYSE: KO  ) or top-shelf booster Intel (NASDAQ: INTC  ) :

VZ Dividend data by YCharts.

Like the telecoms, Coke operates in a pretty mature industry with little low-hanging fruit for growth opportunities. You could say the same about Intel, particularly since the traditional PC market started slowing down in 2012. Yet these companies (and most non-telecom Dow stocks) have shown real commitment to raising their dividends like clockwork. It's a shareholder-friendly approach that matters more to long-term owners than to investors with current or upcoming income needs.

And unlike Verizon and AT&T, they haven't see their share prices skyrocket in the smartphone era. Coke and Intel represent a healthy balance of determined dividend increases, rock-solid core businesses (yes, even Intel in the post-PC era!), and reasonable share prices. Put these elements in a blender and enjoy a dividend shake of epic value for the patient investor.

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