The Dow 30’s highest-yielding stocks are encountering challenges. Should risk-averse individuals consider them for enhancing their revenue stream?
Verizon Communications, the Dow Jones Industrial Average’s top dividend-yielding stock, yields approximately 7.7%. Next in line is the pharmacy conglomerate Walgreens Boots Alliance, with a yield of close to 6.6%. Lastly, industrial behemoth 3M presents a gain of nearly 5.9%. Besides being part of the Dow 30, these corporations share another commonality — they are grappling with substantial corporate difficulties.
Do the risks associated with these stocks outweigh the potential benefits for dividend investors? Let’s delve deeper into these high-yielding Dow components to find an answer.
1. Verizon: The Situation Deteriorates
Verizon (NYSE: VZ), one of the premier telecom service providers in the U.S., boasts a significant cellular phone service business, among other legacy assets. Despite fierce competition, the company has maintained a consistent revenue stream thanks to its steady customer base and monthly bill payments.
However, the ever-evolving cellular technology landscape requires continual investment, which could be a concern given Verizon’s high operating expenses. Additionally, Verizon’s debt-to-equity ratio 1.6 is considerably higher than its closest competitors. Recent revelations about the telecom’s use of lead in old cabling could also invite regulatory and legal issues.
While Verizon’s yield is high, it’s also fraught with numerous expensive challenges. As a result, risk-averse investors might wish to observe until the lead cable situation is more clearly understood before purchasing the stock.
2. Walgreens: Steady but Risky Progress
Walgreens (NASDAQ: WBA), the pharmacy retailer, might be the safest bet among the trio. However, this doesn’t imply it’s risk-free. Walgreens is transitioning its business model — exiting the pharmacy benefits management business and shifting towards healthcare services. The goal is to foster stronger customer relationships and augment its pharmacy operations.
Although this strategy appears sound, it remains largely unproven. That said, Walgreens has a commendable track record of increasing its dividend for 48 consecutive years, signifying resilience amidst corporate changes. While shifting towards healthcare services may be capital-intensive, the company’s substantial stake in AmerisourceBergen could help finance the transition.
Given the need for close monitoring, Walgreens may not suit investors looking for straightforward investments. However, it could prove to be an intriguing high-yield turnaround stock for those willing to invest time.
3. 3M: An Uncertain Outlook
3M (NYSE: MMM), an industrial powerhouse, is the last name on this list and, like Verizon, presents substantial risks. Though the company’s business has been lacklustre of late, a turnaround is expected due to heavy investment in R&D. However, mounting legal and regulatory troubles could result in high costs.
The primary concerns include lawsuits linked to military earplugs and cleanup costs associated with forever chemicals. The resulting financial burden is hard to predict, but it’s likely to be significant.
Despite its challenges, dividend powerhouse 3M may weather the storm. Yet, this stock may not be the best choice for those averse to uncertainty.
Proceed with Caution
Verizon, Walgreens, and 3M all offer attractive yields but carry significant company-specific risks. Verizon and 3M’s unpredictably high legal and regulatory burdens may only suit the more adventurous and active investors. Meanwhile, Walgreens’ untested business model may deter risk-averse investors, but those willing to monitor its progress might find its potential turnaround compelling.
The Dow Jones’ highest dividend-yielding stocks — Verizon, Walgreens, and 3M — all present unique opportunities and challenges. While they have attractive yields, their associated risks must not be overlooked. Verizon and 3M could be considered by bold, active investors who can stomach the legal and regulatory uncertainties. Conversely, Walgreens may draw the attention of investors willing to follow a potentially rewarding business transformation. Regardless, all investors should proceed cautiously and ensure thorough due diligence before making investment decisions.
