“The Dogs of the Dow” system involves purchasing the index’s 10 stocks with the highest dividend yields at the end of each year. Using the technique has a few major advantages. Of course, stocks with high dividend yields pay investors to wait for a rebound to provide either significant income or the ability to buy more shares of stock at no extra cost.
Moreover, for the most part, the members of the Dow are profitable leaders in their sectors, so they pose little risk. The members with the highest dividend yields tend to be names that have struggled over the previous year or two since yields rise when stock prices drop. As a result, buying Dogs of the Dow stocks allows investors to buy quality names on weakness. Due to the “reversion to the mean” principle, the latter strategy is often successful.
Dow (DOW)
Dow (NYSE:DOW), a leading chemicals maker, has a few strong, positive catalysts. The company says its low-carbon chemicals business will increase its total profits by over $3 billion “by 2030.”
Additionally, after its low-carbon Texas plant “delivered more than 15% returns on invested capital” since it was launched in 2017, the firm plans to open another similar plant in Canada’s Alberta province. CEO Jim Fitterling estimates that the Alberta plant will boost the company’s EBITDA by $1 billion annually. Finally, Fitterling reported that the firm should benefit from continued global demand for ethylene and polyethylene increases.
Analysts, on average, expect the company’s earnings per share to jump to $3.26 this year from $2.26 last year, giving the firm a very attractive forward price-earnings ratio of just 14.3. It also has a high dividend yield of 5.2%.
IBM (IBM)
IBM (NYSE:IBM) should get a big boost from this development. Many firms will need help to get their AI systems up and running, and IBM’s consultants can provide that assistance.
More importantly, last summer, the company launched WatsonX, which Barron’s described as a “new software platform for building enterprise AI models and applications. ” Several large firms have signed up for the platform, including Intel, Samsung, SAP and NatWest Bank.
Moreover, the proliferation of AI also appears to have significantly increased the demand for the firm’s hybrid cloud offerings. Revenue from those sources climbed 7.5% in the third quarter versus the same period a year earlier to $4.5 billion. Most AI systems access a great deal of data from the cloud.
The forward price-earnings ratio of IBM stock is an impressive 16, while its dividend yield comes in at a robust 4.2%.
Amgen (AMGN)
Investment bank BMO Capital recently upgraded Amgen (NYSE:AMGN), a huge drug maker, “to outperform,” as the firm believes that the Street is undervaluing the firm’s developing anti-obesity drugs.
BMO believes AMGN could report positive data on its two anti-obesity drugs—AMG 133 and AMG 786—in 2024. AMG 133 is an injectable, while AMG 786 is an oral treatment.
The bank was upbeat about many of the company’s other initiatives, placing a $326 price target on the shares.
AMGN also has three anti-cancer drugs that the Food and Drug Administration designated as breakthrough treatments, indicating strong potential. What’s more, analysts expect the company’s forward price earnings ratio to jump to 20 in 2024 from $18.57 in 2023.
AMGN stock has an attractive forward price-earnings ratio of 15.7 and a significant dividend yield of 2.9%.
On the date of publication, Larry Ramer held a long position in INTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
