2 Dow Jones Dividend Stocks With Yields Above 3% You Can Buy Now and Hold at Least a Decade

If you have any faith in economic indicators, right now seems like a terrible time to buy stocks. A long bull market has pushed the major market indices up to record highs.

From the end of 2022 through Nov. 19, the benchmark S&P 500 index rose a stunning 54.1%. As is often the case during bull runs, earnings from the index's components haven't risen as quickly. As a result, the S&P 500's cyclically adjusted price-to-earnings ratio, or CAPE ratio, recently shot up past 35 for the third time in more than 150 years.

The past couple of times stock market valuations were stretched this far, things didn't work out well for most investors. In 1999, the CAPE ratio peaked above 44 just before the dot-com crash.

S&P 500 Shiller CAPE Ratio data by YCharts.

The second time the CAPE ratio popped above 35 was during the first week of 2022. By the end of September 2022, the benchmark index was more than 25% below its previous peak.

We don't know when the next bear market will rear its ugly head, but we can reasonably expect dividend-paying stocks in the Dow Jones Industrial Average to continue meeting and raising their quarterly payments. That's because stocks aren't added to the elite, 30-member index unless their underlying businesses have already demonstrated an ability to generate steadily growing profits regardless of the economy's overall direction.

Johnson & Johnson (NYSE: JNJ) and Coca-Cola (NYSE: KO) are two Dow Jones stocks that offer yields above 3% at recent prices. That's more than double the yield offered by the average dividend-paying stock in the S&P 500 index. Here's why investors who buy these stocks now have a good chance to see their payouts continue rising for at least another decade.

1. Johnson & Johnson

Johnson & Johnson spun out the consumer goods segment that most investors associate with the company in 2023. The spinoff didn't stop the company that remained from continuing a six-decade dividend-raising streak. In April, J&J raised its dividend payout for the 62nd consecutive year. At recent prices, the stock offers a 3.2% yield.

J&J's consumer goods spinoff is great news for folks who want to see their dividends rise faster. Sales from its remaining operating segments, pharmaceuticals and medical technology, are growing much faster than sales of Listerine.

If we adjust for currency exchange rates, third-quarter sales rose 6.3% year over year and the trend should continue. Management expects overall sales to grow by 6% this year.

Investors can look forward to continued growth in 2025. In the third quarter, the U.S. Food and Drug Administration (FDA) approved J&J's anti-inflammation injection Tremfya to treat ulcerative colitis patients. In Europe, regulators approved Rybrevant to treat a genetically defined group of advanced-stage lung cancer patients.

In Q3, J&J bolstered its medical technology segment by acquiring V-Wave and its minimally invasive interatrial shunt device. Adding this innovative treatment option to the company's already robust collection of heart-related devices will cement relationships with cardiologists and help it continue its decades-long dividend-raising streak.

Over the past five years, J&J's traded at an average price of 23 times trailing 12-month earnings. At recent prices, you can pick up J&J for 15.4 times the midpoint of management's adjusted earnings expectation for 2024. A lower-than-average multiple is surprising, because without a consumer goods segment weighing it down, J&J's growth rate could accelerate. Buying some shares now to hold over the long run could be a smart move.

2. Coca-Cola

The Coca-Cola Company's dividend-raising streak is a couple of months longer than J&J's. The company announced its 62nd consecutive annual dividend payout increase this February. At recent prices, the beverage champion offers a 3.1% yield.

Shares of Coca-Cola have fallen about 14% from a peak they reached in September. The stock is down because case volumes in North America fell about 1% year over year during the first nine months of 2024. Despite a stagnating volume of soda sold, revenue in North America climbed by 10% over the same time frame because Coca-Cola's brands have a great deal of pricing power.

Coca-Cola's brands allow for price raises, but it can only push this lever so far before something breaks. If an unexpected economic downturn limits consumer pocketbooks at any point over the next several years, raising prices further could become nearly impossible.

A stock market concerned about a lack of volume growth has pushed Coca-Cola stock down to 21.9 times forward earnings estimates. That's significantly less than the company's five-year average price-to-earnings ratio of 26.5 times trailing 12-month earnings.

Stagnant volume is troubling, but this isn't the first time over the past 62 years that Coca-Cola has dealt with stagnating case volume in its biggest geographic segment. Investors who buy shares of the soda company at recent prices have a great chance to come out way ahead over the long run.

Don’t miss this second chance at a potentially lucrative opportunity

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See 3 “Double Down” stocks »

*Stock Advisor returns as of November 18, 2024

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.