After having paid so much attention to high-growth tech stocks, a rotation would be highly beneficial for other sectors of the market — particularly those that the Dogs strategy tends to highlight. Add to that the simplicity of the strategy, and it’s easy to understand why so many people will follow the Dogs of the Dow throughout the coming year and beyond. Investors considering these strategies should evaluate their investment goals, risk tolerance, and time horizon. Consulting with a financial advisor could also provide tailored advice, helping align specific financial goals with appropriate investment strategies. This thorough approach ensures investment decisions are based on historical success and adapted to personal financial landscapes and future market expectations.
They believe these five stocks are the five best companies for investors to buy now… Three of the four worst performers in the Dow were among 2023’s Dogs of the Dow, including the two stocks with the weakest overall returns. We can’t retire off of 4.5% in annual yield—a “perfect” amount of portfolio income is closer to 7%. Even if we put a million bucks to work on the Dogs, we’d still only be netting $45,000 a year. Of course, you and I know that high yields don’t mean a stock is a value—sometimes they just mean a stock is cheap. The Dogs strategy showed cracks in 2019, really fell off the rails in 2020 and came up short again in 2021.
This point is because the stock is 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.
Looking at an example of the Dogs of the Dow strategy means analyzing the Dogs of the Dow at any given time, and several critical factors come into play. First and foremost, you would focus on the dividend yields of the selected stocks, ranging from 7.49% for Verizon’s dividend yield to 2.72% for JP Morgan Chase’s dividend yield. High dividend yields are a primary criterion for inclusion in the Dogs of the Dow, so assessing whether Dogs of the dow 2023 each stock meets this requirement is essential. Search for each company and find the “dividend yield” at the top of each profile page on the right-hand side. Now that you understand the concept behind the Dogs of the Dow strategy and how the stocks are chosen, let’s dig deeper into how this investment strategy works.
Verizon (VZ, 6.8%)
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.
History of the Dogs of the Dow
- After a tumultuous year, this simple strategy that outperformed sagging markets might be just what you’re looking for.
- While 2020 wasn’t a great year for the Dogs, most other years have done very well.
- Ian Cooper is an expert options trader with decades of experience, and a special talent for predicting big market moves.
- In addition, it’s invested in the technology to deploy production units, known as “crackers,” so that it can quickly adjust to upstream changes with suppliers and downstream requirements from customers.
- As a footnote, IBM did show an operating loss of $3.2 billion during the last quarter, which might give pause.
The general concept is to allocate money to the 10 highest dividend-yielding, blue-chip stocks among the 30 components of the DJIA. This strategy requires rebalancing at the beginning of each calendar year. By contrast, both stocks new to the Dogs fared poorly in 2022.
Best-in-Class Portfolio Monitoring
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.
For investors, that leaves software and consulting as the businesses to watch, which were up 7.5% and 5.4%, respectively, in the last quarter. The core markets these businesses address – cloud computing, consulting and hybrid AI – are growers. Global IT spending is anticipated to rise to $4.6 trillion in 2025, up 5% over 2022, according to research firm Gartner. IBM is poised to increase revenues from this spend, and in this respect, there is an achievable and sustainable path to growth.
Dogs of the Dow 2023: 5 Dividend Stocks to Watch
The Dow Dogs, as mentioned, finished in the green on a total-return basis while the S&P 500 lost 18%. So, if you are going to buy VZ, buy it for a dividend that can keep you even with the broad market indexes. Capital appreciation may be part of the picture, but there is no immediate visibility on it. If you adhere to the Dogs of the Dow strategy, you may likely find you will be overturning your position in VZ come this time next year. From the bottom end of the old range, $9 billion, to the top of the new range is 30%, a big number, so it’s fair to assume management is feeling confident.
Sourdough Starters: Patience Breeds Profit in Markets, Not Just Bread
- Like most do-it-yourself (DIY) strategies, there is an active element.
- This simplicity and predictability have contributed to the enduring popularity of this investment approach.
- For instance, if the DJIA had a robust year, did the Dogs manage to keep pace or even surpass it?
- The stock is down 42% for the year-to-date, following a disappointing second-quarter performance where its EPS was off 79% year-over-year, and revenue dropped 17%.
Below are the current Dogs of the Dow ranked by share price, from lowest to highest. The first five stocks on the table are the Small Dogs of the Dow. Alongside each of the stocks are billionaire investors who report holding the stock on their most recent Form 13-F filings with the U.S. The principle of Occam’s razor suggests that solutions involving fewer variables are preferable to those that require more inputs. Simpler is better because getting the job done with just a few moving parts carries less risk of confusion and failure than a highly complex system. Yet, many investors are hopeful that the value stocks that tend to get included in the Dogs of the Dow are primed for a big bounce in 2024.
The gray cloud hanging over Intel is writ large in the initial public offering (IPO) of its Mobileye Global (MBLY) unit which it acquired for $15.3 billion in 2017. The once ebullient valuation of $50 billion was significantly lowered to $17 billion – just a tad more than what Intel originally acquired it for – when the self-driving car company went public late last month. The company has been losing market share to competitors after falling behind Advanced Micro Devices (AMD) in chip innovation and to Taiwan Semiconductor Manufacturing (TSM) in fabrication.
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.
This approach is a testament to our contrarian philosophy, which involves focusing on stocks that have great potential but are disliked by the masses. Our methodology is vastly superior regarding returns, as we put the concepts of Mass Psychology and Contrarian investing into play, ensuring that we are on the right side of the market. To effectively apply the Dogs of the Dow strategy today, investors must integrate the sagacity of historical perspectives with the realities of current market conditions.
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.