3 Dow Dividend Stocks Beating the Market This Year

The Dow Jones Industrials Average ($DOWI), known simply as the Dow, is one the oldest and most prestigious price-weighted indexes, comprised of 30 leading publicly traded companies. Each company included in the Dow is considered a powerhouse in its industry, contributing to the index's reputation for accurately reflecting broad market trends and investor sentiment.

As the artificial intelligence (AI) megatrend has emerged to drive the stock market higher over the last year and a half, the Dow has underperformed other equity benchmarks that are more heavily skewed to Big Tech and growth stocks. However, amid lingering macroeconomic and geopolitical uncertainties, some blue-chip stocks are now starting to rise to the top as outperformers.

In particular, three dividend-paying blue chip stocks - Walmart Inc. (WMT), Merck & Co., Inc. (MRK), and American Express Company (AXP) \- are outperforming not only their parent index on a year to date basis, but they’re also outpacing the broader S&P 500 Index ($SPX), with its gain of 14.8%. In fact, two of these Dow dividend stocks have even notched higher YTD returns than the Nasdaq-100 Index ($IUXX), which closed Monday’s session up 18.3% on the year. Here’s a closer look.

Dividend Stock #1: Walmart

Commanding a massive market cap of about $539.1 billion, Arkansas-based Walmart Inc. (WMT) has evolved into a global retail giant offering a seamless shopping experience, allowing customers to shop anytime and anywhere, both online and in-store. From its modest beginnings, Walmart now operates over 10,500 stores and numerous e-commerce websites in 19 countries.

Shares of this retail giant have surged 28.3% YTD, outpacing the Dow’s return of less than 3% during the same time frame. That’s also good enough to beat the SPX and the Nasdaq-100 this year, too.

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On Feb. 20, Walmart announced a 9% jump in its annual dividend, marking its largest hike in 10 years. This decision reflects Walmart's confidence in its future growth prospects and robust cash flow.

With a remarkable 51-year track record of consecutive dividend increases, Walmart is a Dividend King, and remains committed to rewarding its shareholders. Its annualized dividend of $0.83 equates to a dividend yield of 1.23%. Plus, with a conservative payout ratio of 33.32%, Walmart has plenty of room for further dividend increases.

In terms of valuation, the stock is trading at 0.83 times sales, much lower than the consumer staples industry median.

WMT shares climbed nearly 7% on May 16 after the company reported better-than-expected fiscal 2025 Q1 earnings results. Total revenue surged by 6.1% year over year to $161.5 billion, while adjusted EPS increased by 22.5% annually to $0.60, surpassing projections by a 15.4% margin.

During the quarter, Walmart delivered strong net sales growth across its divisions. Walmart U.S. reported a solid 4.6% year over year rise in net sales, while Walmart International sales increased 12.1% annually. Sam’s Club also performed well, with a 4.6% rise in net sales and a remarkable 34.3% year over year increase in operating income.

Commenting on the company’s solid Q1 performance, President and CEO Doug McMillon said, “The momentum we see across the business is driven by growth in units sold and transaction counts, as well as market share gains, including general merchandise. These are not inflation-driven results.”

Encouraged by the company’s strong start to fiscal 2025, management raised its full-year guidance, anticipating consolidated net sales growth at the higher end or above the previous 3% to 4% range and adjusted EPS to hit or exceed the prior guidance of $2.23 to $2.37.

Analysts tracking Walmart project the company’s profit to increase 9% year over year to $2.42 per share in fiscal 2025 and climb another 9.9% to $2.66 per share in fiscal 2026.

Walmart stock has a consensus “Strong Buy” rating overall. Out of the 32 analysts covering the stock, 24 suggest a “Strong Buy,” four advise a “Moderate Buy,” and the remaining four give a “Hold” rating.

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The average analyst price target of $72.17 indicates a potential upside of just 7% from the current price levels. However, the Street-high price target of $81 suggests that the stock could rally as much as 20.1%.

Dividend Stock #2: Merck

Based in New Jersey, Merck & Co., Inc. (MRK) is a healthcare company with a diverse product portfolio spanning oncology, hospital acute care, immunology, neuroscience, and other areas. Valued at $327.9 billion by market cap, the company is best known for its flagship drug, Keytruda, which has significantly contributed to the company's steady revenue growth in recent years and has been approved for multiple cancer treatments.

Merck shares are up nearly 17% on a YTD basis, outperforming the Dow and the S&P 500 - and nearly matching the Nasdaq-100’s gains.

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Merck holds a solid track record of 13 years of consecutive dividend increases. On May 28, the company announced a quarterly dividend of $0.77 per share, payable to its shareholders on July 8. The company offers an annualized dividend of $3.08 per share, resulting in a dividend yield of 2.38%.

Priced at 14.98 times forward earnings, the stock trades lower than both its own five-year average and its industry peers.

MRK popped almost 3% on April 25 following the release of its Q1 earnings results, which sailed past Wall Street’s forecasts on both the top and bottom lines. Sales surged 8.9% year over year to $15.8 billion, beating projections by $460 million. On an adjusted basis, the company earned $2.07 per share, up 47.9% year over year .

Merck's pharmaceutical division achieved $14 billion in revenue during Q1, reflecting a 10% year-over-year increase. Keytruda, its flagship immunotherapy for multiple cancer types, generated approximately $7 billion in revenue, up 20% annually.

While Keytruda continues to be a significant revenue driver for Merck, its impending patent expiration in 2028 has prompted the company to secure new agreements and launch key drugs to mitigate potential losses. One such example is Winrevair, approved during Q1 in the U.S. for treating a progressive and life-threatening lung condition.

For fiscal 2024, the pharmaceutical giant upwardly revised its revenue and adjusted EPS forecasts. The company now anticipates fiscal 2024 sales to range between $63.1 billion and $64.3 billion, compared to the previous guidance range of $62.7 billion and $64.2 billion. Additionally, management expects adjusted EPS to range between $8.53 and $8.65, up from its earlier forecasted range of $8.44 and $8.59.

Analysts tracking Merck predict the company’s profit to jump 472.2% year over year, reaching $8.64 per share in fiscal 2024, and rise another 14.8% to $9.92 per share in fiscal 2025.

Merck stock has a consensus “Strong Buy” rating overall. Out of the 23 analysts offering recommendations for the stock, 21 suggest a “Strong Buy,” and the remaining two give a “Hold” rating.

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The average analyst price target of $138.45 indicates a potential upside of 8.6% from the current price levels. The Street-high price target of $155 suggests potential upside of 21.6%.

Dividend Stock #3: American Express

With a market cap of $161.7 billion, New York-based American Express Company (AXP) is a diversified financial services provider, offering a wide range of charge and credit card products as well as travel-related services worldwide. The company handles merchant acquisition, processing, servicing, settlement, and point-of-sale marketing and information services for merchants. AXP also provides network services and fraud prevention services and designs and operates customer loyalty programs.

Shares of this financial services provider have rallied 21.9% YTD, placing AXP second only to WMT for the best-performing Dow component of 2024 so far. American Express is easily outperforming the broader S&P 500 and Nasdaq-100 this year, too.

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On May 7, the company declared a quarterly dividend of $0.70 per share, payable to its shareholders on Aug. 9. It offers an annualized dividend of $2.80 per share, resulting in a dividend yield of 1.25%. Furthermore, by maintaining a low payout ratio of 19.40%, the company has substantial capacity to invest its earnings in future dividend increases and growth initiatives.

In terms of valuation, AXP stock trades at 17.08 times forward earnings, lower than its own five-year average of 18.82x.

Following the announcement of its better-than-anticipated Q1 earnings results on April 19, American Express shares climbed 6.2% on the day. Total revenues net of interest expenses surged 10.6% year over year to $15.8 billion, marginally higher than analysts’ predictions.

The company’s EPS of $3.33 also topped estimates for EPS of $2.97, with the 38.8% annual earnings growth driven by higher cardmember spending. During the quarter, American Express welcomed 3.4 million new members, with approximately 70% of those opting for a credit card with an annual fee. Millennials and Gen Z consumers accounted for over 60% of new members globally.

For fiscal 2024, management reaffirmed its outlook for revenue growth of 9% to 11% and EPS to range between $12.65 and $13.15. Analysts tracking American Express project the company’s profit to reach $13.01 per share in fiscal 2024, up 16.1% year over year, and grow another 14.9% to $14.95 per share in fiscal 2025.

AXP has a consensus “Moderate Buy” rating overall. Out of the 24 analysts offering recommendations for the stock, nine suggest a “Strong Buy,” two recommend a “Moderate Buy,” 11 advise a “Hold,” and the remaining two give a “Strong Sell” rating.

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The stock is trading nearly flat with its average analyst price target of $230.36, but the Street-high price target of $275 suggests that AXP could rally as much as 20.5% from Monday’s close.

On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.