With another year in the history books, investors are turning to popular year-end strategies. Keeping that in mind, one of my personal favorites is the Dogs of the Dow.
With this strategy, investors buy 10 of the highest-yielding stocks on the Dow Jones that fell out of favor in the year prior. They hold for the year, collect dividends along the way, cash out by year end and repeat the strategy in the New Year.
So far, the Dogs of the Dow have historically done well.
In 2014, the Dogs average was up nearly 11% compared to the Dow Jones Industrial Average (DJIA) of 10%. Two years later, average return was nearly 21% compared to the DJIA at 16.5%. Since 2000, the Dogs of the Dow have posted an average annual return of right around 9%.
So, while it’s easy to call the Dogs of the Dow strategy antiquated and useless, history tells us that’s not true. Here are three top Dogs that should benefit as we jump into 2020.
Dogs of the Dow Stocks to Invest In: Pfizer (PFE)
2019 wasn’t kind to Pfizer (NYSE:PFE) or its shareholders. In late July, PFE plunged 21% on company plans to combine its blockbuster drug-selling unit with Mylan (NYSE:MYL), and announced it was cutting its sales and adjusted earnings forecast.
The worst, however, appears to have been priced into the stock. With a strong drug portfolio and continued investments in acquisitions and partnerships, investors are waking back up to the opportunity in under-valued shares of PFE. Cantor Fitzgerald analyst Louise Chen argues that revenue gains, “operating leverage, pipeline advancements, return of capital to shareholders, and M&A are all underappreciated.”
She has an “Overweight” rating on PFE stock with a price target of $53.
From its August low of $33.97, investors sent the stock to a recent high of $39.14. Helping, PFE just raised its dividend from 36 to 38 cents a share — payable March 6, 2020 to shareholders of record on Jan. 31, 2020. If PFE can get its act together in the New Year, I’d like to see a near-term, bearish gap refill around $41.
Exxon Mobil (XOM)
Exxon (NYSE:XOM) is still one of the biggest, most ignored natural gas and oil giants on the market.
Investors have shied away thanks to trade tensions, global weakness and The Organization of the Petroleum Exporting Countries’ (OPEC) unwillingness to cut production further. Essentially trading flat from where it started the year around $70, shares yield just under 5%. Add in the fact that XOM has seen more than 37 years of annual dividend increases — as pointed out by Motley Fool contributor Reuben Gregg Brewer — and there’s plenty to like with this stock for long-term buy and hold investors.
Bank of America Merrill Lynch even believes the XOM stock could run by 47% in 2020. In fact, the firm named XOM its top U.S. oil major pick for the New Year with a target of $100. All on the heels of project execution and stronger growth ahead.
Cisco Systems (CSCO)
So far, Cisco (NASDAQ:CSCO) shareholders have not had a great year.
After a 34% run out of the gate, CSCO stock lost 25% of its value in the latter part of 2019 before a small rise in the past two weeks.
This back-end fall comes due to slowing growth on the heels of the U.S.-China trade war, and dismay from its second-quarter report. While it managed to beat earnings, Cisco said it expects “an annualized revenue decline of 3% to 5%,” and a decline in tech spending — which left many investors disappointed.
China sales “dropped precipitously in light of the trade discussions,” Cisco CEO Chuck Robbins said earlier this year. “We’re being uninvited to bid. We’re not being allowed to even participate [in large China enterprise deals] anymore.”
A good deal of negativity, however, appears to be priced into the stock.
Not only that, but the company raised its divided by 6% this year to 35 cents, and added another $15 billion to its buy-back program.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.