When investing for your retirement, you probably have a few objectives in mind. You won’t be working, for example, so you’ll want your investments to generate income that you can live on, and getting a stock that pays a good, high-yielding dividend is the most logical way to do that. When investing for retirement, or actually, when investing for any reason at all, you probably also don’t want to overpay. So buying a stock at a reasonable price-to-earnings ratio, and ideally a P/E a bit cheaper than average, would be a plus.

24/7 Wall St. Key Points:

• Dow is a profitable company generating $45 billion in annual revenue and paying a 6.8% dividend yield.
• Dow’s dividend is well above average, as is its growth rate, while its P/E ratio is cheaper than most large industrial stocks.
• Sit back and let dividends do the heavy lifting for a simple, steady path to serious wealth creation over time. Grab a free copy of “2 Legendary High-Yield Dividend Stocks” now.

Most important of all, you want to be able to sleep at night. You want to buy a stock that produces an essential product, and won’t be going away anytime soon.

Dow Inc. (NYSE: DOW) is a stock that checks all these boxes.

Get to know Dow Inc.

Formed through the merger of Dow Chemical and DuPont, then the reorganization of the merged companies into three spinoffs, Dow, Corteva (NYSE: CTVA), and DuPont de Nemours (NYSE: DD) once again, in the late 20-teens, Dow today looks a lot like the historic chemicals company you’ve known all your life. Dow today operates in three main divisions, packaging and specialty plastics, industrial and intermediate infrastructure, and performance materials and coatings, in descending order of size. Packaging and specialty plastics is the profits driver, providing roughly half of Dow’s $44.6 billion in annual revenue, and essentially all of the company’s $2.8 billion in annual operating profit.

So long as this Dow division performs well, you can safely assume that the rest of your investment will do just fine.

 

What can Dow do for you?

But why should you want to own Dow stock in the first place? Well, not to put too fine a point on it, but the answer is because Dow will pay you a really nice dividend to fund your retirement. For every share of Dow you buy at its current share price of just under $41, you can expect to receive $2.80 a year in annual dividends, paid out quarterly. That works out to a dividend yield of 6.8%, or $60.80 in dividends on a $1000 investment, which is a lot more than any bank will pay you in interest on a $1000 savings account. It’s also nearly five times the average 1.4% dividend yield of the S&P 500.

Now, there is a caveat here. Dow currently sports a dividend payout ratio of 185%, meaning it’s dividend obligation is nearly twice as much as it’s earning in a year, which shouldn’t be sustainable long term. Two things, however, tell me this isn’t something to worry about. First, Dow has maintained its  dividend amount in good years and bad for the past five years straight. Some years, the dividend ate up as much as three times Dow’s annual profit. Other years, it consumed only 30% or 40%. But every year, those dividend checks kept on coming.

I suspect they’ll keep on coming, too, because according to analyst forecasts, Dow’s earnings are on track to exceed $2 a share this year, and exceed $3 a share next year, such that as early as 2025, earnings will once again be more than enough to cover the dividend.

Call it a hunch, but I don’t think this dividend is going away anytime soon.

Dow stock looks cheap

Final point now, for why I think Dow stock looks like a good place to invest $1000: Dow stock is cheap. Morningstar data shows that the average P/E ratio on the S&P 500 right now is 31, meaning the average stock costs about 31 times the average stock’s earnings. Dow stock, however, has a P/E ratio of only 27.5, making it 12% cheaper than average.

This is despite Dow paying a dividend that’s way above average, and despite Wall Street analysts forecasting that Dow will keep growing its profits at an average rate of more than 13% per year, versus an average growth rate of less than 11% on the S&P.

An above average dividend yield, an above average growth rate, and a below average stock price? Sounds like a winner to me.

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