The Dogs of the Dow May Pay Big Dividends in 2024


Dogs of the Dow - The Dogs of the Dow May Pay Big Dividends in 2024

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Don’t look now. But dividends are back in vogue. That could make the so-called Dogs of the Dow strategy — buying the 10 Dow Jones Industrial Average components with the highest yields — a winning bet in 2024.

Investors are already flocking back to companies that provide steady income. The Vanguard High Dividend Yield Index Fund (NYSEARCA:VYM) and Schwab U.S. Dividend Equity (NYSEARCA:SCHD) ETFs are each up about 6% in the past month, outperforming the S&P 500. Real estate investment trusts (REITs), equities known for paying gigantic dividends for tax purposes, have done even better. The Real Estate Select Sector SPDR Fund (NYSEARCA:XLRE) has shot up nearly 12% since mid-November. That trend could continue.

Long-term bond yields have plunged in the past few months. The 10-year has tumbled from about 5% in late October to a current level below 4%. Yields should head even lower next year now that Wall Street is pricing in several interest rate cuts from the Federal Reserve in 2024.

So, if investors want to buy top blue-chip stocks that pay big yields, what are their options? As of Dec. 15, the 10 stocks that would make the Dogs of the Dow list are, ranking from highest yield to lowest:

  1. Walgreens (NASDAQ:WBA)
  2. Verizon (NYSE:VZ)
  3. 3M (NYSE:MMM)
  4. Dow (NYSE:DOW)
  5. Chevron (NYSE:CVX)
  6. International Business Machines (NYSE:IBM)
  7. Amgen (NASDAQ:AMGN)
  8. Cisco (NASDAQ:CSCO)
  9. Coca-Cola (NYSE:KO)
  10. Johnson & Johnson (NYSE:JNJ)

Walgreens’ dividend yields a whopping 7.6%. The drug store giant is one of six Dow components that pay dividends with a yield above 4%. But investors must remember that high yields aren’t always what they’re cracked up to be. After all, a yield is the annual dividend payment divided by the stock price. So, there are two ways for a yield to go up: The dividend (the numerator in this equation) can increase or the stock price (the denominator) can decrease.

That’s exactly what happened with Walgreens. Shares have plunged more than 30% this year. Walgreens and rival CVS (NYSE:CVS) have struggled due to weak earnings and concerns about labor problems. (Pharmacists at both chains have staged walkouts this year.) So, while Walgreens may look attractive because of its big yield, the fundamentals aren’t necessarily great.

And that’s the case with several other Dow pooches. Five other Dow dogs (Verizon, 3M, Chevron, Coke, and J&J) are in the red year to date. In fact, the only dog of the Dow that has had a reasonably good year on Wall Street is IBM. Shares of Big Blue, which pays a dividend that yields just over 4%, have risen 15% this year. That still lags the S&P 500’s rise of more than 20% though. But shares of Dow, Amgen and Cisco, which are also in the green, have underperformed the broader market by an even wider margin. Those three stocks are sporting only single-digit percentage gains for 2023.

The Bottom Line: (Maybe) Take a Bet on the 10 Dogs of the Dow

Still, buying the dogs of the Dow now could prove to be a fruitful strategy. Last year’s Dow dogs have gained nearly 12% through mid-December, led by big gains at JPMorgan Chase (NYSE:JPM) and Intel (NASDAQ:INTC).

Looking ahead, IBM and Cisco could benefit from continued strong demand for tech. Walgreens may be able to bounce back now that it has a new CEO, Tim Wentworth, who has experience in health insurance. Wentworth was the head of pharmacy benefits manager Express Scripts and then an executive at Cigna (NYSE:CI) after the insurer bought Express Scripts in 2018.

And if the economy cools a bit as many are expecting, healthcare stocks Amgen and J&J, consumer staples like Coca-Cola and telco giant Verizon could get a boost since they tend to be more defensive companies that hold up better in tougher economic times. So don’t ignore big dividend stocks. It may be time to let the Dow dogs out in 2024.

As of this writing, Paul R. La Monica did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Paul R. La Monica is a veteran financial journalist with nearly 30 years experience (including more than 20 at CNN) covering the stock market and other asset classes, the economy and other corporate and business news.

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