Most stocks in the Dow Jones industry average pay dividends. And most of these Dow stocks delivered negative returns in 2022. That is to be expected given the gloomy market conditions that prevailed for much of the year.
However, there were a handful of big winners. Here are the top three Dow dividend stocks of 2022 — and whether or not they’re good picks for 2023.
1. Angle
rafters (CVX 0.66%) is believed to be the best-performing Dow dividend stock of 2022. Shares of the oil and gas giant are up more than 50%, in large part due to high fuel prices.
Investors didn’t just benefit from this impressive gain, however. Chevron also rewarded shareholders with a great dividend that the company increased for the 35th straight year. The dividend yield is currently 3.2%.
The odds of more dividend hikes on the horizon seem pretty good. Chevron has a low dividend payout ratio of under 32%. The company believes it can easily fund its dividend program and buy back shares even if Brent crude prices fall nearly 40% below current levels.
2nd mark
note (MRK 0.12%) was not far behind Chevron last year. Big pharma stocks are up almost 45% in 2022. Merck had many positive developments that served as catalysts, including great results from a late-stage clinical trial evaluating sotatercept in the treatment of pulmonary arterial hypertension.
The drugmaker announced in December 2022 that it was increasing its dividend by 5.8%. Merck’s dividend yield, which accounts for this increase, is just over 2.6%.
Chief Financial Officer Caroline Litchfield told analysts on Merck’s third-quarter conference call that the company “remains[s] Committed to our dividend with a goal of growing it over time.” Merck’s strong cash flow should allow the drugmaker to meet that commitment.
3. The Travelers Companies
There was a big gap between #2 and #3 in Dow dividend stocks in 2022. The Traveling Company (TRV -1.03%) delivered a solid gain of more than 20% thanks to a big gain in the fourth quarter of the year.
That fourth-quarter surge came after Travelers reported better-than-expected earnings results. While net income declined year-on-year, the decline was due to losses from Hurricane Ian, one of the strongest hurricanes in decades.
Travelers offers a solid, if not spectacular, dividend. The dividend yield is currently just under 2%. With a payout ratio of just 26.5%, the property-casualty insurer could certainly afford a dividend increase.
Good tips for 2023?
Are These Three Top Dow Dividend Stocks of 2022 Good Picks for the New Year? Wall Street seems to think one of them is, but the other two are dubious.
Analysts are least optimistic about Travelers. Almost three-quarters of analysts polled by Refinitiv in December advised against buying the insurance stock.
There are mixed feelings about Merck. Just over half of the analysts covering the stock rate it as a good buy. The rest recommend holding Merck.
On the downside, many on Wall Street remain pretty excited about Chevron’s prospects. Two-thirds of analysts polled by Refinitiv rate the oil giant as a buy or strong buy.
I think all three stocks could deliver solid returns over the long term. But my guess is that Wall Street will be right about the ranking next year.
I’m least confident about Travelers. In my opinion, 2023 could go either way for Merck. However, I suspect that Keytruda’s strong sales growth coupled with the increasing momentum of the company’s newer drugs could allow the pharma stock to continue on its trajectory of success.
Of these three Dow dividend stocks, I think Chevron is the best pick for the new year. I agree with analysts who believe that 2023 will be another bull market for oil. Chevron should benefit if this prediction comes true.
Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in Merck and recommends Merck. The Motley Fool has a disclosure policy.