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The Dow's 3 Most Pathetic Dividend Stocks

Dan Caplinger, The Motley Fool

All 30 stocks in the Dow Jones Industrials (DJINDICES: ^DJI) pay a dividend, and most of those companies have done a good job of rewarding shareholders through their regular dividend payments. More than three-quarters of the average's members have dividend yields above the 2% average for the broader market.

Yet that still leaves a handful of Dow stocks that don't treat their shareholders as well as they could on the dividend front. In particular, three stocks -- Visa (NYSE: V), Goldman Sachs (NYSE: GS), and Nike (NYSE: NKE) -- stand out for their extremely low dividend yields. Below, you'll learn why these stocks are so stingy with their payouts and whether investors should expect any changes in the near future.

Blue field with symbols for market sectors and word Dividends in white.

Image source: Getty Images.

Nike

Nike is the highest-paying dividend stock on this list, but the athletic apparel giant's 1.3% yield doesn't hold up very well compared to most of its other Dow peers. In some ways, Nike has been a friend to dividend investors, with 16 consecutive years of dividend increases culminating in an 11% boost to its quarterly payout in 2017. Double-digit percentage increases have been commonplace in recent years, but the challenge for income investors is that Nike's starting point for dividend growth was so low that even respectable efforts to improve its track record haven't yet had a big impact.

Nike faces some fundamental business challenges that have held the shoe giant back. In its home North American market, rising competition from Adidas has eaten into the company's market share, and a generally unfavorable environment in retail more broadly has forced Nike to deal with promotional discounting that can hurt its bottom line. Strength in overseas markets has been a source of hope for the athletic specialist. But with Nike having chosen to keep its payout ratio at a relatively low level of around 30%, dividend investors shouldn't expect a major shift in the company's philosophy toward payouts in the near term.

Goldman Sachs

On Wall Street, Goldman Sachs is the king of investment banks, with a reputation for financial savvy and generating profits. Yet dividend investors haven't shared much in that success, with the bank sporting a yield of just 1.2% currently. For seven years in a row, Goldman has made increases to its quarterly payouts, but even a generous 15% boost in 2017 hasn't been enough to raise its yield significantly.

Goldman generally prefers to return capital to shareholders using stock buybacks rather than dividends. Earlier this year, the company said it would make a huge move in that direction, authorizing repurchases of 50 million shares, worth more than $12.5 billion at current prices and representing a nearly 13% stake in the entire bank. Financial institutions have faced pressure from the Fed and other regulators to keep their payout ratios below the 30% mark, but Goldman's current level of roughly half that would give the investment banking giant plenty of room to do dividend increases without running into trouble if it were so inclined. Investors just don't seem to be concerned about the issue, especially as its stock gains ground.

Visa

Lastly, Visa occupies the basement of the Dow in terms of dividend yield, paying just 0.7%. The company has been publicly traded for less than 10 years, and it has done a good job of growing its dividend payout over that time, with increases amounting to a sevenfold rise in what shareholders get from Visa on a quarterly basis. Yet one major part of the problem is that Visa's initial dividend was only a token amount, and so even dramatic boosts of as much as 50% in some years haven't moved the needle. More recently, Visa has slowed its dividend growth, and even though an 18% increase is sizable, it pales in comparison to stock price performance in recent years.

Visa has done a good job of growing its card business while still keeping up with the rapid pace of technological innovation in electronic payments. Like Goldman, Visa has also spent a lot of money on share repurchases, including $7 billion in buybacks during 2016. That has reduced the amount of money available for income investors, but those who are more concerned about capital appreciation don't have much to complain about the Dow component's performance.

Don't expect much improvement

None of these three companies has much incentive to make big changes to its dividend policy, and most investors are pleased with their overall prospects. Of the three, Nike has faced the most business pressure lately, but nothing about the conditions that these companies face is likely to result in an about-face in their philosophy about sharing profits with investors through meaningful and substantial dividends.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nike and Visa. The Motley Fool has a disclosure policy.