The “Dogs of the Dow” are back. And this year, the biggest dogs are not just generous yielders – they’re cash cows with price upside to boot.
For the uninitiated, the Dogs of the Dow strategy is simply buying the 10 Dow Jones Industrial stocks with the highest yields, typically at the beginning of a given year. The basic premise is that, when it comes to blue-chip stocks, high relative yields are the best sign of value. They simply highlight firms at the weakest part of their business cycles.
Blue chip names are rarely cheap, which is why we only want to buy them when their businesses are in the tank. As sales and profits recover (as they almost-always do), we enjoy outsized price gains along with our dividends.
Since 2000, the Dogs of the Dow have returned an average of 7.9% as a group. That beats both the 5.8% return of the S&P 500, and even the 6.3% average return of the Dow Jones Industrial Average itself.
The strategy is so popular that it even inspired an ETF — the ALPS Sector Dividend Dogs ETF (SDOG) — which invests in the highest-yielding stocks in each sector.
So, who are this year’s dogs? In escalating order of yield:
- Merck & Co.,Inc. (MRK): 3.2% yield
- Caterpillar Inc. (CAT): 3.3% yield
- Exxon Mobil Corporation (XOM): 3.3% yield
- The Coca-Cola Co (KO): 3.4% yield
- Cisco Systems, Inc. (CSCO): 3.4% yield
- International Business Machines Corp. (IBM): 3.4% yield
- Boeing Co (BA): 3.6% yield
- Chevron Corporation (CVX): 3.7% yield
- Pfizer Inc. (PFE): 3.9% yield
- Verizon Communications Inc. (VZ): 4.3% yield
Today, I’m going to take a look at the three “doggiest” Dogs – Chevron, Pfizer and Verizon.
Not only do they currently offer the highest yields, but all three are excellent safety plays to boot.