Should You Buy the 3 Highest-Paying Dividend Stocks in the Dow Jones?

The Dow Jones Industrial Average’s highest-yielding dividend stocks—Verizon Communications (VZ), Chevron Corporation (CVX), and Merck & Co. (MRK)—offer enticing payouts of 6.4%, 4.9%, and 3.8%, respectively. But with yields this high, investors must ask: Are these stocks a reward for income-seeking investors, or a trap luring them into unsustainable payouts? Let’s dissect each opportunity, weighing their financial health, industry dynamics, and dividend sustainability.

1. Verizon Communications (VZ): A Telecom Anchor with Limits

Verizon’s 6.4% yield is the highest in the Dow, backed by a 18-year streak of annual dividend increases. Q1 2025 revenue rose 1.5% to $33.5 billion, with net income up to $5 billion, driven by its dominant wireless and business services segments. The company’s dividend of $0.6775 per share (maintained since late 2024) represents a payout ratio of 57% using its adjusted EPS of $1.19—a manageable level that leaves room for growth.

However, Verizon’s growth is constrained by competition from T-Mobile and overinvestment in 5G spectrum. Its “price-lock program” to stabilize customer costs highlights the challenge of maintaining margins in a saturated market. While its essential services insulate it from economic downturns, investors should temper expectations for rapid growth.

2. Chevron Corporation (CVX): Energy’s Dividend Reliant on Oil Prices

Chevron’s 4.9% yield reflects its 38-year dividend growth streak, but its sustainability hinges on oil prices. Q1 2025 net income fell 36% year-over-year to $3.5 billion, as crude prices dropped to ~$60/barrel amid President Trump’s “Liberation Day” tariffs and OPEC+ supply hikes. Its $1.71-per-share dividend (payable in June) translates to a payout ratio of 78% using adjusted EPS of $2.18—a warning sign.

Chevron’s production metrics are stable (3.35 million barrels per day), but its free cash flow dropped 52% to $1.3 billion due to higher capex and lower margins. While buybacks ($3.9 billion in Q1) and dividends remain priorities, shareholders face cyclical risks. A further oil price decline could force cuts.

3. Merck & Co. (MRK): Pharmaceutical Challenges Undermine Yield Appeal

Merck’s 3.8% yield is its highest since 2020, but its dividend stability is overshadowed by structural issues. Q1 2025 revenue fell 2% to $15.5 billion, with its top drug, Keytruda, growing just 4% amid rising competition. Gardasil sales plunged 41%, exposing overreliance on a single drug.

The $0.81-per-share dividend (payout ratio ~36.5%) is sustainable, but Merck’s pipeline lacks blockbuster prospects. Its inclusion in the Dow—its only pharma peer since Pfizer’s exit—highlights the index’s sector gaps.

The Dogs of the Dow: A Strategy with Caveats

The “Dogs of the Dow” strategy, which buys the 10 highest-yielding Dow stocks annually, could favor Verizon and Chevron. But investors must pair yield analysis with payout ratios and fundamentals. Verizon’s 57% payout ratio and stable cash flows make it a safer bet, while Chevron’s 78% payout ratio signals vulnerability to oil price declines. Merck’s 36.5% ratio is healthy, but its fading revenue growth undermines its long-term appeal.

Conclusion: Proceed with Caution

Verizon offers the best balance of yield (6.4%) and sustainability, though growth will be modest. Chevron’s 4.9% yield is a gamble on oil prices rebounding, while Merck’s structural issues make its dividend less compelling.

Investors should prioritize:
- Verizon for income stability but expect low single-digit returns.
- Chevron only if oil prices recover, but monitor its debt (now 16.6% of capital) and payout ratio.
- Avoid Merck unless its pipeline delivers breakthroughs.

The Dogs of the Dow can still work, but in 2025, investors must look beyond yield to payout ratios and business models. As of May 2025, Verizon is the only top dividend stock offering both a high yield and a sustainable path forward.