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.
7. International Business Machines Corporation (NYSE:IBM)
Dividend Yield as of December 17: 2.92%
An American multinational tech company, International Business Machines Corporation (NYSE:IBM) ranks seventh on our list of the best Dogs of the Dow dividend stocks. The company focuses on developing business-class systems tailored for use by other organizations. It continues to design AI platforms with robust security measures, clear audit trails to trace the origin of generated data, and other features specifically designed to meet business needs. The stock has been delivering strong earnings since the start of 2024, surging by over 41.6%.
In the third quarter of 2024, International Business Machines Corporation (NYSE:IBM) reported $15 billion in revenue, representing a modest 1.46% growth compared to the same period last year. This growth was largely driven by strong results in the Software segment, including a recovery in Red Hat. The company’s generative AI business exceeded $3 billion in revenue, showing a quarter-over-quarter increase of over $1 billion. For the fourth quarter, IBM expects constant currency revenue growth to align with third-quarter levels, supported by sustained strength in the Software segment. Management remains confident in achieving over $12 billion in free cash flow for the year, supported by further improvements in operating margins.
International Business Machines Corporation (NYSE:IBM) maintains a strong cash position, generating $9.1 billion in operating cash flow in the latest quarter, with free cash flow totaling $6.6 billion. The company also returned $1.5 billion to shareholders through dividend payments. IBM offers a quarterly dividend of $1.67 per share, with a dividend yield of 2.92%, as of December 17. The company has consistently increased its dividends for 29 consecutive years.
International Business Machines Corporation (NYSE:IBM) was a part of 56 hedge fund portfolios at the end of Q3 2024, up from 54 in the previous quarter, according to Insider Monkey’s database. The stakes held by these funds have a collective value of over $1.73 billion.
6. The Coca-Cola Company (NYSE:KO)
Dividend Yield as of December 17: 3.06%
The Coca-Cola Company (NYSE:KO) is a Georgia-based multinational beverage company. It posted third-quarter 2024 revenues of nearly $12 billion, exceeding analysts’ projections by $290 million. The company demonstrated strong cash generation, with $2.9 billion in operating cash flow and $1.6 billion in free cash flow. Its adjusted operating margin reached an impressive 30.7%, reflecting solid profitability.
The Coca-Cola Company (NYSE:KO) has consistently been favored by investors thanks to its long-standing position as a market leader. Its most significant competitive advantage is its strong brand, which creates a barrier to competition and differentiates it from others in the industry. In addition to its trusted reputation for delivering a reliable product, the company has developed exceptional marketing skills, ensuring its brand remains highly visible and memorable to consumers. The stock is up by over 6% in 2024 so far.
This consistent performance has resulted in significant long-term benefits for shareholders, as The Coca-Cola Company (NYSE:KO) has raised its dividend for an impressive 62 consecutive years. Few companies can match such a remarkable record of returning profits to investors. Its quarterly dividend comes in at $0.485 per share for a dividend yield of 3.06%, as of December 17.
Insider Monkey’s database of Q3 2024 indicated that 69 hedge funds held stakes in The Coca-Cola Company (NYSE:KO), up from 68 in the previous quarter. The overall value of these stakes is roughly $35 billion. Warren Buffett’s Berkshire Hathaway held the largest individual stake in the company, with 400 million shares.
5. Merck & Co., Inc. (NYSE:MRK)
Dividend Yield as of December 17: 3.23%
Merck & Co., Inc. (NYSE:MRK) is an American pharmaceutical company, based in New Jersey. It mainly provides innovative health solutions to its consumers. The company currently offers a quarterly dividend of $0.81 per share, having raised it by 5.2% on November 19. This marked the company’s 14th consecutive year of dividend growth, which makes MRK one of the best Dogs of the Dow dividend stocks. The stock’s dividend yield on December 17 came in at 3.24%.
Merck & Co., Inc. (NYSE:MRK)’s leading cancer treatment, Keytruda, has received approval for a wide range of indications. Recently, the company announced that a Phase 3 trial for Keytruda in a specific type of ovarian cancer met its primary goal of improving progression-free survival, though it did not achieve the secondary goal of extending overall survival. Currently, Keytruda is approved in the US for 40 different oncology indications, and Merck is working to gain similar approvals in key international markets, such as the European Union and Japan, where these indications have not yet been authorized.
In the third quarter of 2024, Keytruda’s sales rose by 17% year-over-year, reaching $7.4 billion. This performance was also highlighted in GreensKeeper Asset Management’s Q3 2024 investor letter. Here is what the firm shared:
“Merck & Co., Inc. (NYSE:MRK) was our second-largest detractor this quarter, declining -8.3%. MRK’s leading HPV vaccine, GARDASIL 9, faced challenges internationally due to inventory buildup within its Chinese distributor, which is expected to reduce shipments for the remainder of 2024. Despite this short-term impact, the long-term outlook for GARDASIL 9 remains promising. Meanwhile, the company’s $27 billion Keytruda cancer juggernaut continues to grow at a healthy clip, powering earnings growth.”
Overall, Merck & Co., Inc. (NYSE:MRK) reported revenues of $16.66 billion, representing a 4.3% increase compared to the same period last year. The company’s pipeline is advancing and expanding, reflecting its success in building a sustainable innovation framework and positioning itself with a more diversified portfolio to support future growth.
Of the 900 hedge funds tracked by Insider Monkey at the end of Q3 2024, 86 funds held stakes in Merck & Co., Inc. (NYSE:MRK), down from 96 in the previous quarter. The collective value of these stakes is over $7.1 billion. With over 14.6 million shares, Fisher Asset Management was the company’s leading stakeholder in Q3.
4. Johnson & Johnson (NYSE:JNJ)
Dividend Yield as of December 17: 3.40%
Johnson & Johnson (NYSE:JNJ) is a New Jersey-based pharmaceutical company that specializes in a wide range of biotech and medical products and offers related services to consumers. The company has steadily expanded its portfolio through various acquisitions. Its latest purchase was the medical device company V-Wave, with an initial payment of $600 million. The deal also includes potential milestone payments that could total up to $1.1 billion, contingent on regulatory approvals and commercial successes.
Johnson & Johnson (NYSE:JNJ) reported strong earnings in the third quarter of 2024, with revenues reaching $22.4 billion, reflecting a 5.25% increase compared to the same period last year. For the first nine months of the year, the company generated $14 billion in free cash flow, up from $11.9 billion in the previous year. It has revised its 2024 guidance, including adjusted operational earnings per share (EPS), to account for stronger performance and the effects of its recent acquisition of V-Wave. The company now expects adjusted operational sales to grow between 5.7% and 6.2%, with a midpoint of 6.0%.
Johnson & Johnson (NYSE:JNJ) is a strong dividend payer, having raised its payouts for 62 consecutive years. The company currently offers a quarterly dividend of $1.24 per share for a dividend yield of 3.40%, as of December 17.
As per Insider Monkey’s database of Q3 2024, 81 hedge funds held stakes in Johnson & Johnson (NYSE:JNJ), up from 80 in the preceding quarter. These stakes are collectively valued at over $5.4 billion.
3. Amgen Inc. (NASDAQ:AMGN)
Dividend Yield as of December 17: 3.56%
An American multinational biopharmaceutical company, Amgen Inc. (NASDAQ:AMGN) ranks third on our list of the best Dogs of the Dow dividend stocks. The company is distinguished by its undervaluation and strong pipeline, especially its experimental obesity drug, MariTide. In its latest earnings report, it highlighted that a Phase 2 study of MariTide is underway in adults with overweight or obesity, with or without Type 2 diabetes mellitus and topline data are expected in late 2024. Plans for a broad Phase 3 program across multiple indications are progressing as scheduled. In addition, a Phase 2 study of MariTide has been initiated to explore its potential for treating Type 2 diabetes in both obese and non-obese patients.
This aspect of the company was also highlighted by PGIM Jennison Health Sciences Fund in its Q2 2024 investor letter. Here is what the firm has to say:
“Amgen Inc. (NASDAQ:AMGN) is a large cap global biotech company with a diverse portfolio of marketed and pipeline products. Amgen’s discovery pipeline had led the company to broaden its focus from oncology, immunology, and renal disease to include musculoskeletal, cardiovascular, and neurologic conditions. In addition, Amgen has turned its expertise in antibody manufacturing into a leading position in the development of biosimilars of competitor drugs. Most recently, Amgen shares advanced in 2Q following its announcement that its novel injectable GLP-1 agonist / GIPR antagonist, MariTide, for obesity showed promising interim Phase 2 data and has shown enough promise to warrant advancement into pivotal trials as soon as late 2024. While Eli Lilly and Novo Nordisk will remain the market leaders in the diabetes / obesity space, we think there is room for Amgen to carve out a meaningful share of the market with its antibody-peptide conjugate approach that could enable monthly or better dosing for MariTide.”
In the third quarter of 2024, Amgen Inc. (NASDAQ:AMGN) reported revenue of $8.5 billion, which showed a 23.1% growth from the same period last year. The company saw double-digit sales growth from ten products. This included $1.2 billion in sales from its rare disease products, driven by several first-in-class, early-stage medicines. The company generated $3.3 billion in free cash flow during the third quarter of 2024, compared to $2.5 billion in the same period in 2023. The increase was fueled by strong business performance and the timing of working capital items, although it was partially offset by lower interest income.
On December 10, Amgen Inc. (NASDAQ:AMGN) declared a 5.8% hike in its quarterly dividend to $2.38 per share. This was the company’s 13th consecutive year of dividend growth. It returned $1.2 billion to shareholders through dividends in the most recent quarter. The stock’s dividend yield on December 17 came in at 3.56%.
Amgen Inc. (NASDAQ:AMGN) was included in 68 hedge fund portfolios at the end of Q3 2024, compared with 69 in the previous quarter, according to Insider Monkey’s database. The stakes held by these funds have a collective value of over $1.7 billion.
2. Chevron Corporation (NYSE:CVX)
Dividend Yield as of December 17: 4.41%
Chevron Corporation (NYSE:CVX) is a California-based energy company that specializes in oil and gas. The company reported strong earnings for the third quarter of 2024, with revenues reaching $50.67 billion, surpassing analysts’ expectations by $1.63 billion. It also achieved a 7% increase in global production compared to the previous year, totaling almost 3.4 million barrels of oil equivalent per day (BOE/d). This growth was fueled by record production in the Permian Basin and the acquisition of PDC Energy.
Chevron Corporation (NYSE:CVX) is popular among investors as the company has grown into one of the leading energy firms globally. It invests billions annually to expand its operations, leveraging both organic growth and acquisitions to fuel its expansion. These investments contribute to increased profitability and cash flow. In the third quarter of 2024, the company generated $9.7 billion in operating cash flow, up from $6.3 billion in the prior quarter. Additionally, it returned $7.7 billion to shareholders through dividends and share buybacks during the quarter.
Chevron Corporation’s (NYSE:CVX) dividend growth streak currently spans over 37 years, which makes it one of the best Dogs of the Dow dividend stocks. The company’s quarterly dividend comes in at $1.63 per share and has a dividend yield of 4.41%, as recorded on December 17.
By the end of Q3 2024, Chevron Corporation (NYSE:CVX) was held in 63 hedge fund portfolios, a slight decrease from 64 in the previous quarter, according to Insider Monkey’s database. The total value of the stakes held by these hedge funds surpasses $21 billion.
1. Verizon Communications Inc. (NYSE:VZ)
Dividend Yield as of December 17: 6.62%
Verizon Communications Inc. (NYSE:VZ) is a telecommunications company that offers services in communications, technology, information, and entertainment. In the third quarter of 2024, the company reported revenue of $33.3 billion, a marginal decrease of 0.02% compared to the same period last year. Wireless revenue reached $19.8 billion, reflecting a 2.7% year-over-year increase. Moreover, the company achieved 389,000 net broadband additions, marking the ninth consecutive quarter with more than 375,000 net additions in broadband.
Verizon Communications Inc. (NYSE:VZ) is pursuing the acquisition of Frontier as part of its strategy to strengthen its position in the expanding fiber-optic internet market. The company views fiber as a critical growth area for the future. If Verizon can make Frontier’s operations profitable, the acquisition could be advantageous in the long run, as customers who use both Verizon’s mobile and internet services are generally more loyal and less likely to switch providers.
Third Point Management also highlighted the company’s acquisition in its Q3 2024 investor letter. Here is what the firm said:
“While some economic activity has been showing signs of slowing, the defensive composition of the current high yield market with a high mix of higher quality credit and short duration has let the rates tailwind overwhelm such concerns. The lowest quality sectors of the market have performed best, fueled by both soft/no landing expectations, as well as two positive events in the beleaguered telecom space. Telecom/cable have been poor performers year to date due to overhang from the growth of FWA (aka “wireless cable”) and increased fiber building, however the sector re-rated materially on two deals. Second, Verizon Communications Inc. (NYSE:VZ) announced a deal to acquire Frontier Communications (FYBR), a transaction which the fund benefited from by virtue of its investment in FYBR debt. This transaction, aimed at increasing’s VZ fiber footprint, has led to broad revaluation of fiber retail networks that we think is appropriate. While we continue to expect to see FWA rapidly erode non-upgraded cable and especially copper’s share of the low-end broadband market, the VZ deal underscores the value of the higher end footprint.”
Verizon Communications Inc. (NYSE:VZ) has a strong cash position, making it a reliable dividend payer. In the first nine months of the year, the company generated $26.5 billion in operating cash flow, with free cash flow totaling $14.5 billion. It has a solid track record of 18 years of consistent dividend growth. On December 5, Verizon declared a quarterly dividend of $0.6775 per share, maintaining the same amount as the previous dividend. The stock’s dividend yield on December 17 came in at 6.62%.
According to Insider Monkey’s database of Q3 2024, 57 hedge funds owned stakes in Verizon Communications Inc. (NYSE:VZ), down from 67 in the previous quarter. These stakes have a collective value of more than $3.2 billion.
Overall, Verizon Communications Inc. (NYSE:VZ) ranks first on our list of the best Dogs of the Dow dividend stocks. While we acknowledge the potential for VZ to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than VZ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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