We recently compiled a list of the 12 Best High Dividend Stocks Under $100. In this article, we are going to take a look at where Dow Inc. (NYSE:DOW) stands against the other high dividend stocks under $100.

Dividend stocks hold strong appeal for income generation for two main reasons. First, their regular payouts help investors address immediate liquidity needs. Second, historical trends indicate that dividend-paying stocks can help reduce market volatility and limit losses during downturns. Companies with a track record of dividend growth often provide added stability during bearish markets. For instance, between December 31, 1999, and March 31, 2022, during periods of market decline, the High Yield Dividend Aristocrats index outperformed the Composite 1500 and the High Dividend Index, delivering an average monthly outperformance of 140 and 49 basis points, respectively.

Investing in dividend stocks has always been a tug-of-war between those favoring high yields and those backing dividend growth. Analysts suggest that due to economic volatility since 2020 and ongoing market uncertainties impacting corporate earnings, high-yield companies without strong financial stability and discipline may struggle to maintain their dividend payouts. This could leave them at risk of dividend cuts or suspensions. In contrast, dividend growth strategies have proven effective in both rising and falling interest rate environments. According to a report by ProShares, the Dividend Aristocrats index, which tracks companies with at least 25 years of consistent dividend growth, achieved a 14.26% return during the period of declining interest rates from May 2005 to March 2024, outperforming high-yield stocks, which delivered just over 10%. Similarly, during periods of rising interest rates within the same timeframe, dividend growth stocks returned 10.26%, compared to 9.22% for high-yield stocks.

Also read: 10 Extreme Dividend Stocks to Invest in Now

That said, high-yield stocks aren’t entirely off the table. While analysts warn investors about the financial stability of high-yield companies, these stocks have historically delivered solid returns. The research from The Wellington study analyzed the broader market’s dividend-paying stocks from 1930 to 2019, dividing them into five categories based on their dividend yields. The top 20% of dividend payers outshone the rest, with the moderate dividend group also surpassing the broader market in several periods. However, stocks with lower dividend yields showed less consistent performance compared to the broader index.

Kirsten Cabacungan, an investment strategist at Merrill and Bank of America Private Bank, encouraged investors to focus on both price appreciation and dividend income when evaluating total returns. She highlighted that dividend-paying stocks bring added advantages, as their steady income can help cushion losses during market downturns, offering stability to a portfolio. Moreover, during periods of low interest rates, these stocks often provide higher income compared to options like Treasury bonds, CDs, or corporate bonds. Here are some other comments from the analyst:

“Companies that have consistently increased their dividends tend to be more stable, higher quality businesses, which historically have weathered downturns and are more likely to have the ability to pay dividends consistently.”

Cabacungan advised that investors looking for steady income might benefit from focusing on stocks with above-average dividend yields held over the long term. On the other hand, those prioritizing growth without the need for immediate income should consider stocks with a history of steadily increasing dividends. This strategy aligns with a growth-focused approach, enabling investors to capitalize on companies that consistently enhance their dividends as their profits and cash flows expand. Given this, we will take a look at some of the best high-yield stocks under $100.

Our Methodology:

For this list, we first used a stock screener to identify dividend-paying stocks priced below $100 and offering dividend yields above 4% as of January 24. From that selection, we chose 12 companies with strong dividend histories and ranked them in ascending order of hedge funds’ sentiment toward them, according to Insider Monkey’s database of Q4 2023.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Dow Inc. (NYSE:DOW)

Number of Hedge Fund Holders: 31

Dividend Yield as of January 24: 6.77%

Share Price as of January 24: $41.37

Dow Inc. (NYSE:DOW) is an American chemicals company that mainly operates in the material science industry and is involved in the manufacturing and marketing of a wide range of chemical, plastic, and agricultural products. The company operates in three primary segments: packaging and specialty plastics, industrial intermediates and infrastructure, and performance materials and coatings. Like other companies in commodity-driven sectors, such as oil and gas or gold mining, Dow has no control over commodity prices. Instead, it concentrates on managing costs to produce products as efficiently as possible. In the past 12 months, the stock has declined by over 22%.

Dow Inc. (NYSE:DOW) is currently facing challenges from a global economic slowdown, which is impacting commodity and specialty chemical companies, petrochemical firms, and refiners. Many major refining companies have seen their previous gains diminish, and other chemical companies have also experienced declines in their stock values. Due to these difficulties, the company’s quarterly earnings failed to meet investors’ expectations. The company generated an operating cash flow of $800 million, down $858 million from the same period last year. The decline was primarily attributed to the increased inventory levels required to support sales growth and disruptions in the supply chain due to labor issues. Moreover, the company’s free cash flow fell to $64 million, down from $1.06 billion in the same quarter the previous year.

Despite these setbacks, Dow Inc. (NYSE:DOW) is a reliable dividend payer. In the most recent quarter, the company distributed $490 million to shareholders through dividends. In addition, it has been making regular dividend payments to shareholders since 1912. It currently offers a quarterly dividend of $0.70 per share and has a dividend yield of 6.77%, as of January 24.

According to Insider Monkey’s database of Q3 2024, 31 hedge funds owned stakes in Dow Inc. (NYSE:DOW), compared with 32 in the previous quarter. The overall value of these stakes is more than $1.2 billion.

Overall DOW ranks 4th on our list of the best high dividend stocks under $100. While we acknowledge the potential DOW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DOW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stock To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap

Disclosure: None. This article is originally published at Insider Monkey.