It’s important to note that the Dogs of the Dow strategy does not involve extensive research, complex analysis or future predictions performance of specific stocks. Instead, it’s a systematic, rule-based approach that aims to provide investors with a way to participate in the potential value offered by high-dividend-yielding blue-chip stocks within the DJIA. Yet for some investors, the prospect of owning solid stocks with an average dividend yield of 4.4% is too good to pass up. Regardless of whether the Dogs of the Dow outperform the stock market in 2023, many will find that the simple strategy gives them an easy way to get market exposure without a lot of hassle.
Which Dow stocks would make the cut as one of the Dogs of the Dow today? The following table answers that question by listing the ten highest dividend paying Dow stocks as of the most recent close. The table also identifies the five stocks (out of these ten highest dividend yielders) that have the lowest stock price.
The two changes were Merck (MRK) and Coca-Cola (KO) dropped off the list, and Cisco (CSCO) and JPMorgan Chase (JPM) were added to it. In 2020, we at Above the Green Line started our ATGL Dogs of the Dow as an alternative to Swing Trading. Performance of Dogs of the Dow and Small Dogs for 2021 was approximately 14.5% and 15.1% respectively. It was a good year for the Dow 10 and Dow 5 considering the pandemic and the strategy basics.
Verizon (VZ, 6.8%)
Net-net, rumors and reports of forthcoming layoffs from this tech giant may be well-founded. Transformations of the kind Walgreens is undertaking take time, and in healthcare, they take a lot of time. Getting paid more than 5% to wait might seem prudent, given the macros driving healthcare. But the devil is in the details, and in healthcare, there’s a lot of them.
About Dividend Power
- When the end of the year comes, you can either abandon the Dogs of the Dow strategy entirely, or you can repeat it for the following year.
- That compares to 12.49% annualized for the Dogs of the Dow, 10.89% for the Dow 30 and 10.76% for the S&P 500.
- The current stocks in the Dow 30 are listed in the table below.
- It is crucial to examine whether they experienced significant price appreciation, indicating strong capital gains, or remained relatively stable.
This adaptability empowers investors to seize market opportunities as they arise. This selection process aims to capture the potential benefits of investing in companies with high dividend yields relative to their stock prices. As mentioned earlier, the strategy’s underlying assumption is that such companies may be at a stage in their business cycle where their stock prices could grow faster than those with lower dividend yields. The concept of investing in the highest-yielding Dow 30 or Dow Jones Industrial Average stocks was reportedly popularized by Michael B. O’Higgins in his book “Beating the Dow,” published in 1991. These stocks are considered “dogs” or not desirable for investors. However, the investing strategy argues that these stocks can have significant gains in stock price plus relatively high dividend yields.
The advantage of a monthly dividend payment is that this dividend payout schedule more closely matches an investor’s monthly recurring expenses. However, restricting dividend stock investments to stocks that pay monthly misses out on the potential of other high quality dividend stocks. The 10 stocks in the 2023 Dogs of the Dow were chosen because they had the highest dividend yields among the 30 stocks in the Dow Jones Industrials as of the last day of 2022.
Is There an ETF That Tracks the Dogs of the Dow?
All this suggests that buying VZ now requires faith that it can maintain its dividend. A look at the cash flows for the first six months of the year shows about $5.4 billion in dividends paid, which was covered more than three times over by almost $18 billion in cash flow from operations. (Last year, dividend coverage was nearly 4x.) Even if performance deteriorates, there’s plenty of cushion, though if a downturn was bad, Verizon would need to make some difficult decisions about reinvesting in the business. As a footnote, IBM did show an operating loss of $3.2 billion during the last quarter, which might give pause. This loss was attributable to a change in pension operations, resulting in a $6 billion charge that had no impact on the company’s cash. For the trailing 12 months ending the third quarter, IBM had free cash flow – cash from operations less capital expenditures – of $7.4 billion, more than three times the $2.1 billion in dividends paid.
The Market Maker’s Hedge
Thus, a successful investor must not only be contrarian in selecting stocks but also in thinking, ready to challenge established market norms and adapt strategies to meet the evolving financial landscape. This is a simple yet captivating approach to investing in the stock market. Let’s take a few minutes to unravel the secrets of the Dogs of the Dow strategy and reveal how it might be your ticket to enhanced portfolio performance. The 10 companies in the Dow Jones Industrial Average that pay the highest dividend yield as of the last trading day of the year are chosen to be in the Dogs of the Dow.
This point is because the stock is Dogs of the dow 2023 thought to be temporarily oversold. This should mean that companies with a high dividend relative to stock price are near the bottom of their business cycle, so their stock price likely would increase faster than companies with low dividend yields. In this scenario, an investor reinvesting in high-dividend-yielding companies annually would hope to outperform the overall market.
- For instance, between 1992 and 2001, the Dogs of the Dow returned 10.8% average annual total returns matching the Dow 30 and beating the S&P 500 Index, which returned 9.6%.
- This mutual fund focuses on blue-chip companies known for their dividend payments and capital appreciation potential.
- The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
History of the Dogs of the Dow
The stock price fluctuated between $49 and approximately $60 during that period. We then held onto the stock until July 2018 and closed the position when trading in the extremely overbought ranges. One could have exited the position in the $82-$85 range, realizing a gain of 50%. Cicero’s thoughts on the importance of a solid foundation resonate with the Dogs of the Dow strategy. In 2023, the Dogs of the Dow strategy, deeply rooted in Charles Dow’s investment principles, focused on the ten highest-yielding blue-chip stocks within the Dow Jones Industrial Average.
Second, a stock often has a high dividend yield because the price has fallen. This occurs either due to sector or company-specific difficulties. Usually, a stock on the Dogs of the Dow list is undervalued compared to the broader market. It follows a strategy of investing in temporarily undervalued stocks. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, personal finance education, top-rated podcasts, and non-profit The Motley Fool Foundation.
Notably, this period includes the dot-com bust, the Great Recession caused by the sub-prime mortgage crisis, the bear market during the early stages of the COVID-19 pandemic, and the 2022 bear market. The Dogs of the Dow strategy assumes blue-chip companies do not change their dividend to reflect the normal business cycle. Hence, high yields and low stock prices should mean that a company is at the bottom of the business cycle, while low yields and high stock prices should mean a company is near the top of the business cycle.
Dogs of the Dow #1: Verizon
This involves a careful blend of analytical prowess—to identify which stocks are truly undervalued and not just temporarily distressed—and the insight to understand broader market sentiments. Echoing Solon’s belief that “Learning is not wisdom; the essence of wisdom is seeing what is valuable and holding fast to it,” this strategy emphasizes the critical importance of initial stock selection. Investors are prompted to embrace wisdom and courage, exploring territories others might avoid, thereby potentially enjoying more significant gains through capital growth and substantial dividend yields.
For many, though, the simplicity of the Dogs of the Dow strategy makes it worth occasional underperformance. Given the blue chip companies that the strategy selects, investors could certainly do worse than going with the 10 stocks in the Dogs of the Dow as a starting point for building a diversified portfolio. High-dividend stocks tend to do better in market environments in which investors like value-oriented stocks. In particular, because the stocks in the Dogs of the Dow often join the list after a year of poor performance, they’re more prone to rebound quickly when the broader investing community is looking for good values. While these dogs may not be the best Dow dividend stocks, they certainly offer a lot of yield. For instance, Verizon’s (VZ) dividend, at nearly 7%, rivals the long-term return of the S&P 500.
These investment vehicles provide a convenient way to implement the Dogs of the Dow strategy while benefiting from professional portfolio management and diversification. In 2022, the average yield for the selected Dogs of the Dow stocks stood at 3.77%. This figure represents the collective dividend yield of these stocks, showcasing their appeal to income-focused investors seeking dividends as a source of returns. In essence, the Dogs of the Dow strategy is about using the power of dividends and blue-chip stocks to your advantage.
