In this article, we will discuss the best Dogs of the Dow dividend stocks.
Dividend-focused investors are often drawn to stocks with high yields, shaping their strategies around acquiring such investments. A notable approach is the Dogs of the Dow (DOD) strategy, which involves selecting the 10 highest dividend-yielding stocks from the Dow Jones Industrial Average (DJIA) each year. This method operates on the belief that these so-called “Dogs” are either undervalued or out of favor. By targeting these stocks, investors hope to benefit from potential price appreciation while also securing a steady stream of dividend income. The strategy is based on the idea that these high-yield stocks are merely temporarily undervalued and are likely to recover shortly.
Numerous financial experts have provided detailed explanations of the strategy to help investors develop a thorough understanding of it. Robert R. Johnson, professor of finance at the Heider College of Business at Creighton University, spoke about the Dogs in one of his interviews with Business Insider. Here are some comments from the analyst:
“The underlying premise behind the strategy is mean reversion. The [Dogs of the Dow] is based on the theory that stocks can be over or undervalued, but over the long run those that are undervalued will ‘revert to the mean.”
Dow stocks are typically not inexpensive without reason. These companies rarely face the risk of going out of business, and their high yields often result from falling out of favor. According to a report by Forbes, historically, the Dogs have delivered strong long-term performance, but their recent results have been mixed. While they lagged behind the broader market in 2019, 2020, and 2021, they surged ahead in 2022, only to underperform again in 2023.
Also read: 10 Best Mid-Cap Dividend Aristocrats To Buy
However, over the long term, the strategy has managed to outperform its benchmark. Michael O’Higgins found that over a 26-year period, a theoretical portfolio made up of high dividend-yield stocks from the Dow Jones delivered an annualized return of 17.9%. This performance exceeded the Dow Jones Industrial Average’s annualized return of 13% during the same timeframe.
A study in the International Journal of Trade, Economics, and Finance analyzed various versions of the DOD strategy and found that they consistently outperformed the DJIA on a risk-adjusted basis. The research explored three DOD variations: Dow-10, Dow-5, and the “Small Dogs of the Dow,” while incorporating recent market events like the 2001 dot-com bubble, the 2008 financial crisis, and the subsequent recovery. The study revealed that all three strategies delivered better investment performance than the DJIA between 1996 and 2006. Notably, the traditional Dow-10 portfolio achieved a total return of 406.6% during this time, surpassing the DJIA’s return of 355.6%.
Despite the strong performance of the Dogs, analysts caution investors to approach this strategy with care. Kevin Simpson, founder and chief investment officer at Capital Wealth Planning, made the following comment in one of his interviews with CNBC:
“The idea here is that just because they’re ‘Dogs of the Dow’ — some of them really are dogs — and you have to be careful and selective as a stock picker.”
In this article, we will discuss the 10 best Dogs of the Dow dividend stocks.
Photo by Karolina Grabowska from Pexels
Our Methodology:
We began with a pool of 30 stocks from the Dow Jones Industrial Average (DJIA) and identified dividend-paying stocks from this selection. As a majority of the stocks in the index offer dividends, we specifically picked the 10 stocks with the highest dividend yields as of December 17. The stocks are ranked in ascending order of their dividend yields. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. JPMorgan Chase & Co. (NYSE:JPM)
Dividend Yield as of December 17: 2.11%
JPMorgan Chase & Co. (NYSE:JPM) is an American multinational investment banking company. Its broad range of revenue sources is a strong reason to consider investing in the stock. The company operates across multiple sectors, including consumer and commercial banking, capital markets, and asset management. This diversification allows strength in one area to compensate for weaknesses in another, contributing to overall stability. The stock has surged by nearly 38% YTD, outperforming the broader market.
In the third quarter of 2024, JPMorgan Chase & Co. (NYSE:JPM) posted $42.7 billion in revenue, reflecting a 7% increase compared to the same quarter the previous year. The company reported strong financial and operational performance, with $12.9 billion in net income and a return on tangible common equity (ROTCE) of 19%. Its Corporate & Investment Bank (CIB) division performed well, with investment banking fees rising by 31% and Markets revenue growing by 8%.
JPMorgan Chase & Co. (NYSE:JPM) is a generous dividend payer, distributing approximately $3.06 billion to shareholders through dividends in the most recent quarter. The company currently offers a quarterly dividend of $1.25 per share and has a dividend yield of 2.11%, as of December 17. JPM is one of the best Dogs of the Dow on our list.
At the end of Q3 2024, 105 hedge funds tracked by Insider Monkey held stakes in JPMorgan Chase & Co. (NYSE:JPM), compared with 111 in the previous quarter. The consolidated value of these stakes is more than $8.6 billion.
9. 3M Company (NYSE:MMM)
Dividend Yield as of December 17: 2.17%
3M Company (NYSE:MMM) is an American multinational conglomerate that operates in a wide variety of industries. Earlier this year, the company encountered significant challenges, including spinning off its healthcare business and reducing its dividend by 50%. In addition, it has been under pressure for years due to ongoing legal and regulatory issues. Despite these hurdles, the company is actively addressing these challenges and has developed a plan to manage the related expenses. Importantly, management now seems more optimistic about the future compared to their outlook at the beginning of the year. The stock is up by over 40% since the start of 2024.
3M Company (NYSE:MMM) reported strong earnings in the third quarter of 2024. The company’s revenue of $6.07 billion showed a modest growth of 1% on a YoY basis. The revenue beat analysts’ estimates by $10.66 million. It reported a strong operational performance, achieving a double-digit rise in adjusted earnings and robust adjusted free cash flow generation.
In addition, 3M Company (NYSE:MMM) also demonstrated a solid cash position in the quarter. The company’s free cash flow amounted to $1.5 billion, which allowed it $1.1 billion to shareholders through dividends and share repurchases. Currently, the company offers a quarterly dividend of $0.70 per share and has a dividend yield of 2.17%, as of December 17. Before slashing its dividend earlier this year, the company maintained a 66-year streak of dividend growth.
3M Company (NYSE:MMM) was a popular buy among elite money managers during the third quarter of 2024. As per Insider Monkey’s database, 82 hedge funds, growing from 66 in the previous quarter, held stakes in the company. These stakes are worth $3.6 billion in total. Ken Griffin’s Citadel Investment Group was the company’s leading stakeholder in Q3.
8. Cisco Systems, Inc. (NASDAQ:CSCO)
Dividend Yield as of December 17: 2.72%
Cisco Systems, Inc. (NASDAQ:CSCO) is a California-based digital communications tech company. In its recent quarterly earnings, the company noted that its customers are focusing on investments in critical infrastructure to support AI development, highlighting the unique advantage its broad portfolio provides in seizing this opportunity. Its revenue, gross margin, and earnings per share exceeded expectations, falling at the high end or above the guidance range and delivering strong operating leverage. The stock has surged by nearly 16% since the start of 2024.
In fiscal Q1 2025, Cisco Systems, Inc. (NASDAQ:CSCO) reported revenue of $13.8 billion, which fell by 6% from the same period last year. However, the revenue surpassed analysts’ estimates by $70.5 million. The company’s net income for the quarter came in at $2.7 billion. Alongside delivering strong earnings, the company completed the acquisitions of DeepFactor, Inc., a private firm specializing in cloud-native application security, and Robust Intelligence, Inc., a private company offering AI security solutions.
Cisco Systems, Inc. (NASDAQ:CSCO)’s cash position makes it a solid dividend payer. In the most recent quarter, the company generated $3.7 billion in operating cash flow, up 54% from the same period last year. It ended the quarter with $18.7 billion available in cash and cash equivalents. The company also returned $1.6 billion to shareholders through dividends.
Cisco Systems, Inc. (NASDAQ:CSCO), one of the best Dogs of the Dow, has been growing its dividends for 17 consecutive years. The company currently pays a quarterly dividend of $0.40 per share and has a dividend yield of 2.72%, as of December 17.
As of the close of Q3 2024, 60 hedge funds tracked by Insider Monkey reported having stakes in Cisco Systems, Inc. (NASDAQ:CSCO), compared with 61 in the previous quarter. The consolidated value of these stakes is over $3 billion. With over 11.7 million shares, Arrowstreet Capital was the company’s leading stakeholder in Q3.
