The Dogs of The Dow is an investing strategy that consists of buying the 10 stocks with the highest dividend yield out of the Dow Jones Industrial Average (DJIA), an index of 30 large-cap U.S. stocks. The portfolio should be adjusted at the beginning of each year to include the 10 highest yielding stocks. It’s important to note that this is a long-term investment strategy. In the long run, the average return of the Dogs should outperform the Dow-30.
A simple dividend strategy
To implement the Dog of the Dow strategy is simple, just take the amount of money you would like to invest in this strategy and then divide this equally over the 10 highest yielding stocks in the DJIA. Hold these stocks for a year and then at the end of 12 months, look at the 30 Dow stocks again and apply again the 10 highest yielding stocks rule.
Dogs of the Dow Performance
In 2019, the Dogs of the Dow strategy underperformed both the S&P 500 and DJI. The 10 Dogs of the Dow ended 2019 with a performance of 19.67%. Which is -2.67% below the DJIA performance 22.34%. The “small Dogs of the Dow” had a difficult year and ended up just 9.71%.
From 1957 to 2003, the Dogs of the Dow strategy outperformed the Dow Jones index by about 3%. Between 1973 and 1996 the outperformance was even more impressive, about 4.5%. However nowadays the outperformance is dropping towards 1.2%-2% levels.
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Dow Jones Industrial Average stocks
The Dow Jones Industrial Average consists of 30 blue-chip stocks. For dividend investors, this is an interesting list, since 29 of the 30 companies pay a dividend. Many stocks are able to increase their dividend for several consecutive years. The top-yielding Dow stocks all have dividends that are well above average yields in the stock market.
On August 31st, 2020 the composition of the Dow-30 has changed: Exxon Mobil (XOM), Pfizer (PFE), and Raytheon (RTX) were replaced by Salesforce (CRM), Amgen (AMGN), and Honeywell (HON).
You can download your free copy of the Dow-30 stocks list, along with relevant financial metrics like price-to-earnings ratios, dividend yields, and payout ratios, by clicking on the link below:
The 2020 Dogs of the Dow
The average dividend yield for the Dow-30 is 2.62%, which is already a good rate. Also, the average number of consecutive years of dividend increase is high with almost 22 years. Getting close to the dividend aristocrats’ status. The list of the current Dogs of the Dow based on the new index composition is below, along with the current dividend yield of the top-ten yielding DJIA stocks.
- The Travelers Company (TRV)
- The Coca-Cola Company (KO)
- 3M Company (MMM)
- Cisco Systems (CSCO)
- JPMorgan Chase (JPM)
- Verizon Communications (VZ)
- Walgreens Boots Alliance (WBA)
- IBM Corp (IBM)
- Dow, Inc (DOW)
- Chevron Corp. (CVX)
Members can use our Dow-30 stock screener for the latest metrics, updated daily.
Dog of the Dow #10: The Travelers Companies
- Dividend Yield: 3.1%
The Travelers Company (TRV)., Inc. is a holding company, which engages in the provision of commercial and personal property and casualty insurance products and services. The company was founded in 1853 and is headquartered in New York, NY. Travelers reported Q2 earnings results on July 23, 2020. The company’s revenue was down by 0.5% just below $7 billion, missing estimates by $184 million. Core earnings loss per share of -$0.20 was in-line with estimates. The company has raised its dividend for the last 16 years. The last increase was 3.7% in April. Based on a yearly dividend of $3.40, the payout ratio of 38% is quite low and should allow the company to continue to raise its dividend.
The Travelers Companies Inc.’s current dividend yield of 3.07% is 37% above its 5-year average. The 5-year average dividend yield is 2.24% (see red-line in the chart). This indicates the stock may be undervalued today.
Dog of the Dow #9: Coca Cola Company
- Dividend Yield: 3.3%
Dividend King and Dividend Aristocrat Coca-Cola Company (KO) is a total beverage company, offering over 500 brands in more than 200 countries and territories. The brands include the following category clusters: sparkling soft drinks; water, enhanced water, and sports drinks; juice, dairy, and plant-based beverages; tea and coffee; and energy drinks. Coca Cola owns four of the world’s top five nonalcoholic sparkling soft drink brands: Coca-Cola, Diet Coke, Fanta, and Sprite. The company was founded by Asa Griggs Candler in 1886 and is headquartered in Atlanta, GA.
At the moment of writing, KO has a market capitalization of $210 billion and the company generates over $37 billion in annual revenue. Due to COVID-19, the last quarter revenues fell 28.5% to $7.2 billion and the stock price is down 10% for the year. Coca-Cola currently pays a dividend of $1.64 per share, equaling a 3.3% dividend yield. Coca-Cola has increased its dividend for 58th consecutive years, making it a Dividend King.
Coca-Cola Company’s current dividend yield of 3.33% is 5% just above its 5-year average. The 5-year average dividend yield is 3.17% (see red-line in the chart). This indicates the stock looks reasonably valued today.
Dog of the Dow #8: 3M Company
- Dividend Yield: 3.6%
The 3M Company is an American multinational conglomerate corporation operating in the fields of industry, worker safety, US health care, and consumer goods.3M currently pays a dividend of $5.88 per share, equaling a 3.67% dividend yield. Like Coca-Cola, 3M is also a Dividend King, since it has increased its dividend for 62nd consecutive years.
3M Company’s current dividend yield of 3.63% is 36% above its 5-year average. The 5-year average dividend yield is 2.67% (see red-line in the chart). This indicates the stock may be undervalued today.
Dog of the Dow #7: Cisco Systems
- Dividend Yield: 3.7%
CISCO Systems (CSCO) is a world leader in networking for the Internet. The company was founded in 1984 by two computer scientists from Stanford University seeking an easier way to connect different types of computer systems.
Cisco Systems shipped its first product in 1986 and is now a multi-national corporation, with over 35,000 employees in more than 115 countries. Today, Cisco solutions are the networking foundations for service providers, small to medium business and enterprise customers which includes corporations, government agencies, utilities and educational institutions.
Cisco reported fourth quarter and fiscal year 2020 results on August 12, 2020. Revenue declined 9.5% to $12.2 billion and adjusted earnings-per-share were lower by 3.6% to $0.80. For the fiscal year 2020, Cisco’s revenue decreased 5% to $49.3 billion while adjusted earnings-per-share grew 4% to $3.21.
Cisco has now raised its dividend for 10 consecutive years. The current annual dividend is $1.44, with a payout ratio of 46%. The 5 years dividend growth rate is 13.27% while the last dividend increase has been 2.9% last February. Cisco is also one of our holdings in the US retirement portfolio.
Cisco Systems Inc.’s current dividend yield of 3.69% is 22% above its 5-year average. The 5-year average dividend yield is 3.02% (see red-line in the chart). This indicates the stock may be undervalued today.
Dog of the Dow #6: JP Morgan Chase
- Dividend Yield: 3.9%
JPMorgan Chase & Co. (JPM) is an American multinational investment bank and financial services holding company headquartered in New York City. JPM is providing investment banking, asset management, private banking, private wealth management, and treasury services. JPMorgan Chase is ranked by S&P Global as the largest bank in the United States and the seventh largest bank in the world by total assets.
After its dividend cut during the last financial crisis, JP Morgan has increased its dividend for the last nine years. The current annual dividend is $3.60, resulting in a dividend yield of 3.85%.
Dog of the Dow #5: Verizon Communications
- Dividend Yield: 4.2%
Verizon (VZ) is one of the largest communication technology companies in the world. Verizon Communications Inc. The company offers voice, data, and video services and solutions on its award-winning networks and platforms, delivering on customers’ demand for mobility, reliable network connectivity, security, and control. The company was founded in 1983 and is headquartered in New York, NY. Verizon generated revenues of $131.9 billion in 2019 while servicing ~298 million people.
On July 24, Verizon reported financial results for the second quarter. The company earned $1.18 per share, a declining 4.1% from the previous year. Revenue decreased 5.1% to $30.5 billion but topped estimates by $455 million.
Verizon has now increased its dividend for the past 16 years. In September the company declared a $0.6275 per share quarterly dividend, a 2% increase from prior dividend of $0.6150 per share. Based on the $2.51 annual dividend, the forward dividend yield is now 4.2%.
Dog of the Dow #4: Walgreens Boots Alliance
- Dividend Yield: 5.2%
Walgreens Boots Alliance (WBA) is a global leader in retail and wholesale pharmacy, touching millions of lives every day through dispensing and distributing medicines, its convenient retail locations, digital platforms and health and beauty products. The company was founded in 1901 and is headquartered in Deerfield, IL and a member of the Dow-30 index since mid 2018.
Walgreens expects an adjusted earnings-per-share of $4.65 to $4.75 for its fiscal year 2020 outlook, which includes an impact from COVID-19 of around $1.10 per share. 2020 is a difficult year for Walgreens and a is down almost 35% year-to-date, due to uncertainties around COVID-19 and its impact on Walgreens.
In July, Walgreens Boots declared a quarterly dividend amount of $0.4675 per share, which is a 2.2% increase from a prior dividend of $0.4575 per share. The current payout ratio is still around 40% which is a good value. The company is a Dividend Aristocrat and has increased its dividend for 45 consecutive years.
Dog of the Dow #3: Internation Business Machines (IBM)
- Dividend Yield: 5.5%
International Business Machines Corp.(IBM) is an information technology company, which provides integrated solutions that leverage information technology and knowledge of business processes. It operates through the following segments: Cognitive Solutions, Global Business Services, Technology Services & Cloud Platforms, Systems, and Global Financing. The company was founded by Charles Ranlett Flint and Thomas J. Watson Sr. in 1911 and is headquartered in Armonk, NY.
In June 2020 IBM’s board approved an increase of its quarterly cash dividend for the 25th consecutive year. Although it was a small dividend increase, IBM is now a Dividend Aristocrat. The company raised its quarterly dividend from $1.62/share to $1.63/share.
IBM reported its Q2-2020 results on July 20th. The earnings per share of $2.18 beat analysts estimate by $0.09, but were down 31%. Revenue of $18.1 billion was down 5.4%. The Cloud & Cognitive Software grew revenue by 5%, which is the case for many IT-company due to COVID-19.
International Business Machines Corporation’s current dividend yield of 5.46% is 30% above its 5-year average. The 5-year average dividend yield is 4.21% (see red-line in the chart). This indicates the stock may be undervalued today.
Dog of the Dow #2: Dow Inc
- Dividend Yield: 6.0%
Dow Inc. (DOW) is an American commodity chemical company. It was spun off of DowDuPont on April 1, 2019, at which time it became a public company and was added to the Dow Jones Industrial Average. The company is headquartered in Midland, Michigan. The company reported its second-quarter earnings on July 23, 2020. COVID-19 significantly impacted the Company’s financial results for the quarter. Total revenue in the most recent quarter fell 24% year-over-year to $8.4 billion and overall volume declined 9%. Due to the COVID-19 impact on the EPS, Dow’s payout ratio is currently at more than 190%.
The current quarterly dividend is $0.70, resulting in a dividend yield of 6.0%. DOW inc still has to build its dividend history and is a dividend aristocrat since it inherited the dividend history due to the separation of its former parent, DowDuPont. Management stated it is committed to offering an industry-leading dividend to shareholders.
Dog of the Dow #1: Chevron Corp.
- Dividend Yield: 6.9%
Dividend Aristocrat Chevron (CVX) is at the moment the highest-yielding Dow Jones Industrial Average component with a dividend yield of 6.9%, which is based on a quarterly dividend of $1.29. The company has been able to increase its dividend for 33 consecutive years.
Due to COVID-19 and as a result, the oil price drop from $60 to $20 per barrel, Chevron’s earnings-per-share was highly impacted. Chevron had an earnings-per-share loss of -$1.59 compared to a profit of $1.77 in the prior year. See the Q2-results.
The question is how long is Chevron able to maintain its dividend and dividend growth approach. Chevron has increased its dividend by 3.7%, 6%, and 8.4% over the last three years, respectively. However, the high payout ratio and the earnings-per-share loss are not a good sign. Compared to competitors Chevron has a strong balance sheet, essential is that the oil price returning to the $55 per barrel levels.
Other Sources of Dividend Investment Ideas
There are several lists to quickly screen for businesses that regularly pay rising dividends.
- The Dividend Aristocrats Index is based on 64 companies part of the S&P 500 and with 25+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of less than 20 businesses with 50+ years of consecutive dividend increases.
- The MoneyInvestExpert Defensive Aristocrats is a performance-based top-10 selection of the Dividend Aristocrats to outperform the market in the long-term.
- Portfolio lists like the Berkshire Hathaway Portfolio or Bill Gates’stock portfolio can be a source.
- For the European focused investors, there is also the list of European Dividend Aristocrats.
- Dividend Champions are not necessarily members of the S&P 500 index, have increased their dividend for 25 or more consecutive years.
- 100+ years of dividend, the list of stocks that pay over 100 years of dividend can be a list of inspiration.
- Blue Chips stocks from the US or the European ones.
Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.
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