In this article, we will take a look at 10 Dobermans of the Dow to buy.
The Dobermans of the Dow strategy serves as an alternative to the well-known Dogs of the Dow approach, offering a more selective screening process. While the Dogs of the Dow ranks stocks solely based on dividend yield, the Dobermans method prioritizes high-quality companies trading at attractive valuations. The selection process involves two key steps: first, the 30 stocks in the Dow are ranked by Return on Equity (ROE), with the top 20 retained. Then, these 20 companies are further ranked by Free Cash Flow Yield, narrowing the selection to the final ten stocks, which form the Dobermans portfolio. Historically, a hypothetical portfolio following this approach and rebalanced annually has delivered superior performance compared to the Dow, the broader market, and the Dogs of the Dow strategy, according to a report by Forbes. The report further mentioned that since 2000, this methodology has generated a cumulative return of 810%, more than doubling the long-term performance of these benchmarks.
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The significance of dividend stocks is well established, with extensive research examining their long-term performance. A study by Robert Arnott found that over a period of more than 200 years, ending in 2002, the US stock market delivered an average annualized total return of 7.9%, with dividend reinvestment accounting for 5% of that growth. Beyond enhancing overall returns, dividends also provide a buffer during market downturns. Various studies have shown that companies paying dividends tend to experience lower downside risk and recover losses more quickly, ultimately leading to higher risk-adjusted returns over extended investment periods.
Within dividend investing, companies with a consistent track record of dividend growth tend to attract greater investor interest. A report by S&P Dow Jones Indices highlighted that firms with ample cash reserves are better positioned to sustain and expand their operations while continuing to pay stable or increasing dividends. To assess the sustainability of dividends, companies must evaluate whether their payouts are supported by cash generated from operating activities and the availability of free cash flow. Free cash flow is calculated by subtracting capital expenditures—such as spending on property, plants, and equipment (PP&E)—from cash flow generated through operations. Excess cash can be allocated toward dividends, debt reduction, share buybacks, or business expansion.
A positive or growing free cash flow often signals stable or increasing profitability. Since strong free cash flow may indicate a healthy balance sheet, S&P Dow Jones conducted an analysis to determine whether free cash flow yield—measured as annual free cash flow per share divided by stock price—provides valuable insights into investment returns. The underlying investment thesis suggested that all else being equal, companies with a higher free cash flow yield are preferable, as they generate greater free cash income for each dollar invested.
An analysis of the broader market universe, divided into quintiles based on free cash flow yield, revealed that the top-quintile stocks delivered an annualized return of 15.7% between December 1990 and June 2017. This performance exceeded the returns of all other quintiles and outpaced the broader market by an average of 3.6%. While the bottom two quintiles also achieved respectable returns of 11.0% and 8.6% annually, respectively, both underperformed relative to the overall equity market. Given this, we will take a look at Dobermans of the Dow to invest in.
Our Methodology
For this article, we filtered the Dow stocks by Return on Equity, narrowing the list to the top 20. These are then ranked by Free Cash Flow Yield, with the top 10 earning the title “Dobermans of the Dow.” The stocks are ranked according to their free cash flow yield. In cases where multiple stocks had the same free cash flow yield, the number of hedge fund investors was used as a deciding factor. Data on hedge funds was sourced from Insider Monkey’s database, which tracks over 1,000 hedge funds as of Q4 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10. The Procter & Gamble Company (NYSE:PG)
Free Cash Flow Yield: 0.04
Number of Hedge Fund Holders: 79
The Procter & Gamble Company (NYSE:PG) is an Ohio-based multinational consumer goods company that specializes in a broad range of products across various categories, including beauty, grooming, oral care, personal care, fabric and home care, baby and feminine products, and family care. The company exemplifies a recession-resistant stock, as demand for its products remains stable across market cycles, given that consumers rely on them regardless of economic conditions. This consumer staples leader continues to deliver strong growth, with its scale, resilience, and diverse product portfolio making it a reliable choice during economic downturns. Since the start of 2025, the stock has surged by over 6%.
The Procter & Gamble Company (NYSE:PG) reported its fiscal Q2 2025 earnings, posting $21.9 billion in revenue, marking a 2% year-over-year increase and surpassing analyst estimates by over $291 million. Organic sales, which exclude the effects of currency fluctuations, divestitures, and acquisitions, rose by 3%. While the company refrained from implementing price hikes, it managed to drive volume growth, a crucial factor for sustaining long-term revenue. Organic volume increased by 2%, with pricing remaining steady. The baby, feminine, and family care segment performed particularly well, with both organic sales and volume rising by 4%.
The Procter & Gamble Company (NYSE:PG) currently offers a quarterly dividend of $1.0065 per share and has a dividend yield of 2.28%, as of March 10. The company has maintained a strong track record of dividend growth, raising its payouts for 68 consecutive years, backed by a solid cash position. In the most recent quarter, it generated $4.8 billion in operating cash flow, achieving an 84% free cash flow productivity rate. In addition, the company returned $2.4 billion to shareholders through dividends.
9. The Home Depot, Inc. (NYSE:HD)
Free Cash Flow Yield: 0.04
Number of Hedge Fund Holders: 88
The Home Depot, Inc. (NYSE:HD) is an American multinational home improvement company that offers tools, appliances, construction products, and related services. The home improvement industry has generally experienced steady growth, and as the dominant player in the sector, Home Depot benefits from these organic trends. Over the past few years, the company has made significant investments in its stores, digital platforms, and product selection, strengthening its position even amid an inflationary environment. One key initiative has been enhancing its logistics network to improve delivery speed, particularly for large and bulky items. Moreover, the company has pursued strategic acquisitions, with its most recent purchase of SRS Distribution aimed at expanding services for its Pro customers. This move broadens its market reach and creates new opportunities for growth.
The Home Depot, Inc. (NYSE:HD) posted solid fourth-quarter earnings for 2024, with revenue climbing to $39.7 billion—reflecting a year-over-year increase of over 14%. Looking ahead to fiscal 2025, the company expects total sales to grow by approximately 2.8%, while comparable sales are projected to rise by around 1% over the same 52-week period. In addition, the company plans to expand its footprint with roughly 13 new store openings and anticipates a gross margin of about 33.4%.
By the end of the quarter, The Home Depot, Inc. (NYSE:HD) held more than $1.65 billion in cash and cash equivalents. Over the course of fiscal 2024, the company generated close to $20 billion in operating cash flow, reinforcing its financial strength. This stability has enabled it to maintain an uninterrupted streak of dividend payments spanning 152 consecutive quarters. On February 25, the company increased its dividend by 2.2% to $2.30 per share, marking its 15th straight year of dividend growth. Currently, it pays a quarterly dividend of $2.30 per share and has a dividend yield of 2.46%, as of March 10.
8. Johnson & Johnson (NYSE:JNJ)
Free Cash Flow Yield: 0.04
Number of Hedge Fund Holders: 98
An American pharmaceutical company, Johnson & Johnson (NYSE:JNJ) ranks eighth on our list of the Dobermans of the Dow. In the past 12 months, the stock has surged by over 4% and has returned over 16% since the start of 2025. Over the past 15 years, the company has strengthened its market position by shifting its focus toward brand-name drug development. Since spinning off its consumer health business, Kenvue, in 2023, its innovative medicine segment now generates nearly two-thirds of total revenue. While brand-name drugs have a limited period of market exclusivity, their strong pricing power and high margins remain key profitability drivers.
In the fourth quarter of 2024, Johnson & Johnson (NYSE:JNJ) reported revenue of $22.5 billion, marking a 5.2% increase from the previous year. As a major player in the healthcare industry, the company continues to focus on addressing critical medical needs, including multiple myeloma, lung cancer, inflammatory bowel disease, and heart failure.
Johnson & Johnson’s (NYSE:JNJ) MedTech division recorded 6.2% operational sales growth worldwide, with acquisitions and divestitures contributing 1.5% to this increase. The Cardiovascular segment benefited from strong demand for electrophysiology products and Abiomed, while higher sales of wound closure products supported growth in the General Surgery division.
Johnson & Johnson (NYSE:JNJ) offers a quarterly dividend of $1.24 per share for a dividend yield of 2.96%, as of March 10. The company has one of the strongest dividend policies in the market as it has raised its payouts for 62 consecutive years.
7. International Business Machines Corporation (NYSE:IBM)
Free Cash Flow Yield: 0.05
Number of Hedge Fund Holders: 60
International Business Machines Corporation (NYSE:IBM) is an American multinational tech company that provides a wide range of related services and products to its consumers. Chinese AI firm DeepSeek recently made waves with the launch of a budget-friendly AI model. However, this disruption could work in IBM’s favor. Unlike general-purpose AI, the company’s models are designed for specific applications and come at a relatively low cost. The company’s strategy revolves around helping clients integrate AI to address practical challenges. If DeepSeek’s innovation leads to a broader shift toward more affordable and accessible AI solutions, IBM stands to gain from the trend.
Commonly known as Big Blue, International Business Machines Corporation (NYSE:IBM) has outperformed the market in the past 12 months, surging by nearly 34%, as of the close of March 10. In the fourth quarter of 2024, the company reported revenue of $17.6 billion, reflecting a 1% increase compared to the same quarter last year. The Software segment experienced double-digit growth, fueled by strong demand for Red Hat. Businesses worldwide are increasingly relying on IBM for AI-driven transformation, with its generative AI division generating over $5 billion in revenue—nearly $2 billion more than the previous quarter.
International Business Machines Corporation (NYSE:IBM) demonstrated solid cash performance in 2024, generating $13.4 billion in operating cash flow and $12.7 billion in free cash flow. In the fourth quarter, the company returned $1.5 billion to shareholders through dividend payments. Its quarterly dividend comes in at $1.67 per share and has a dividend yield of 2.60%, as of March 10. It is among the Dobermans of the Dow as the company has been rewarding shareholders with 29 consecutive years of dividend growth.
6. Caterpillar Inc. (NYSE:CAT)
Free Cash Flow Yield: 0.05
Number of Hedge Fund Holders: 62
Caterpillar Inc. (NYSE:CAT) is an American manufacturing company that specializes in construction, mining, and other engineering equipment. Building on its long-standing tradition of innovation, the company has intensified efforts to integrate advanced technology and digital connectivity across its product lineup. Its strategy to expand autonomous solutions, electrified powertrains, and AI-driven capabilities has contributed to business diversification.
In the fourth quarter of 2024, Caterpillar Inc. (NYSE:CAT) reported revenue of $16.2 billion, reflecting a 5% year-over-year decline. The decrease was primarily due to an $859 million drop in sales volume, driven by shifts in dealer inventories and lower equipment sales to end users. Dealer inventory levels declined by $1.3 billion during the quarter, a sharper reduction compared to the $900 million decrease recorded in the fourth quarter of 2023. Despite the revenue dip, profit per share increased to $5.78, up from $5.28 in the same period the previous year.
Caterpillar Inc. (NYSE:CAT) offers a quarterly dividend of $1.41 per share and has a dividend yield of 1.63%, as recorded on March 10. The company maintained a strong financial position in 2024, generating $12.0 billion in operating cash flow over the year and closing the fourth quarter with $6.9 billion in cash. Throughout the year, the company allocated $7.7 billion to share repurchases and distributed $2.6 billion in dividends to shareholders. This strong cash position has enabled the company to raise its payouts for 30 consecutive years.
5. NIKE, Inc. (NYSE:NKE)
Free Cash Flow Yield: 0.05
Number of Hedge Fund Holders: 73
NIKE, Inc. (NYSE:NKE) is an Oregon-based apparel and footwear company. It faced headwinds in the second quarter, particularly in China, where revenue declined by 8% year-over-year. However, the drop was less severe than expected, as analysts had anticipated a 10% decline. Meanwhile, gross margins edged down to 43.6% from 44.6% in the same period last year.
NIKE, Inc. (NYSE:NKE) has faced challenges for some time, with its stock price declining over 24% in the past year. However, its year-to-date return has rebounded by nearly 4%, indicating a potential recovery. This improvement is largely due to the company’s strong market presence, which provides a competitive edge. With ample resources, it can sponsor high-profile athletes, supply uniforms for professional sports leagues, and attract consumer interest through strategic partnerships—such as its recently announced collaboration with Kim Kardashian’s SKIMS. In addition, the company managed to cut operating expenses by 5% in the most recent quarter, which could free up resources for marketing initiatives.
NIKE, Inc. (NYSE:NKE) remains committed to delivering strong shareholder returns, backed by its solid financial standing. In the latest quarter, the company reported $7.9 billion in cash and cash equivalents, reflecting a 1% increase from the prior year. It also returned $1.6 billion to shareholders through dividends and share repurchases. The company has been raising its dividends for 23 consecutive years. Currently, it pays a quarterly dividend of $0.40 per share and has a dividend yield of 2.09%, as of March 10.
4. Cisco Systems, Inc. (NASDAQ:CSCO)
Free Cash Flow Yield: 0.05
Number of Hedge Fund Holders: 84
Cisco Systems, Inc. (NASDAQ:CSCO) is an American multinational tech company that deals in networking hardware, software, and telecommunications equipment. The company recently delivered strong fiscal Q2 2025 results, reporting adjusted earnings per share of $0.94 and revenue of $13.99 billion—both surpassing analysts’ estimates of $0.91 per share and $13.87 billion in sales. Revenue grew 9.4% year-over-year, while AI infrastructure orders reached $350 million. Management noted a 29% increase in overall product orders compared to the previous year, or 11% when excluding the impact of Splunk.
Cisco Systems, Inc. (NASDAQ:CSCO) surged by over 23.5% in the past 12 months, outperforming the broader market. As a leader in enterprise networking, the company continues to hold a strong market position across both traditional and advanced network systems. It remains a dominant force in wireless access, switching, and routing, while also playing a critical role in security and collaboration tools. With the growing adoption of hybrid cloud solutions and flexible work environments, the company is well-positioned to capitalize on these trends. In addition, its extensive suite of integrated security and networking solutions gives it a competitive edge in the industry.
Cisco Systems, Inc. (NASDAQ:CSCO) maintained a solid cash position in the latest quarter, with operating cash flow surging 177% year-over-year to $2.2 billion, up from $0.8 billion in the same period of fiscal 2024. By quarter-end, the company held nearly $17 billion in cash and cash equivalents. On February 12, Cisco announced a 3% increase in its quarterly dividend, raising it to $0.41 per share. This marked the company’s 18th consecutive year of dividend growth. As of March 10, the stock has a dividend yield of 2.64%.
3. American Express Company (NYSE:AXP)
Free Cash Flow Yield: 0.06
Number of Hedge Fund Holders: 71
American Express Company (NYSE:AXP) is an American financial services company that mainly specializes in payment cards. The company is known for offering some of the most attractive credit cards on the market, thanks in large part to its highly rewarding Membership Rewards program. Cardholders can easily earn perks and bonuses without requiring high spending. In addition, it acts as both the issuer of its cards and the processor of transactions, granting it access to valuable customer data. This enables tailored reward offerings, making its cards particularly engaging. As a result, many customers remain loyal, often using their American Express cards for years or even decades.
In the fourth quarter of 2024, American Express Company (NYSE:AXP) reported revenue exceeding $17 billion, reflecting a 9% increase from the prior year. Net income surpassed $2.1 billion, marking 12% year-over-year growth. The company achieved record highs in annual Card Member spending, net card fee revenues, and new card acquisitions, issuing 13 million new cards throughout the year. It also expanded its global reach by adding millions of new merchant locations. By the end of the year, growth momentum continued, with fourth-quarter billings rising 8%, fueled by increased consumer and commercial spending during the holiday season.
On January 24, American Express Company (NYSE:AXP) announced a 17.1% increase in its quarterly dividend, raising it to $0.82 per share. This marked the company’s sixth dividend hike in the past three years. The stock supports a dividend yield of 1.26%, as of March 10.
2. Amgen Inc. (NASDAQ:AMGN)
Free Cash Flow Yield: 0.06
Number of Hedge Fund Holders: 72
Amgen Inc. (NASDAQ:AMGN) is a California-based multinational biopharmaceutical company. In the fourth quarter of 2024, the company reported revenue of $9.1 billion, which grew by 11% from the same period last year. The revenue also beat analysts’ estimates by $216.5 million. Product sales increased by 11%, largely due to a 14% rise in volume. When excluding revenue from the Horizon Therapeutics (Horizon) acquisition, sales saw a 10% uptick, with volume growth reaching 15%.
Amgen Inc. (NASDAQ:AMGN) is generating strong returns this year, surging by over 26% since the start of 2025. The market appears to overlook the company’s strong pipeline of innovations, particularly in oncology, which has been further strengthened by its acquisition of Horizon Therapeutics. This deal brings considerable growth potential, especially in the oncology segment. In addition, Amgen is actively engaged in developing promising obesity treatments, which could open the door to a multi-billion-dollar opportunity beginning in 2026.
Amgen Inc. (NASDAQ:AMGN)’s cash position also remained stable in the most recent quarter. The company’s free cash flow for the quarter came in at $4.4 billion, compared with $0.3 billion in the prior-year period. Its operating cash flow also jumped to $4.8 billion, from $0.5 billion in Q4 2023. During the quarter, it returned $1.2 billion to shareholders through dividends. Currently, it offers a quarterly dividend of $2.38 per share and has a dividend yield of 2.91%, as of March 10. The company’s dividend growth streak spans 13 years.
1. Merck & Co., Inc. (NYSE:MRK)
Free Cash Flow Yield: 0.08
With a cash flow yield of 0.08, Merck & Co., Inc. (NYSE:MRK) tops our list of the Dobermans of the Dow. The American multinational pharmaceutical company is well recognized for its extensive portfolio of treatments covering oncology, diabetes, cardiovascular diseases, vaccines, and infectious diseases. Beyond pharmaceuticals, it also has a sizable animal health division and is actively engaged in biotechnology, extending beyond traditional drug development. This diverse business model, combined with a strong history of innovation, makes Merck an attractive investment choice.
Since the start of 2025, shares of Merck & Co., Inc. (NYSE:MRK) have dropped by nearly 4%, largely due to its full-year revenue forecast falling short of market expectations. The company projected revenue between $64.1 billion and $65.6 billion, below analysts’ estimates of $67.31 billion. In addition, its outlook has been affected by the temporary halt of Gardasil shipments to China, though deliveries are expected to resume by mid-2025.
Although the company’s outlook fell short of investor expectations, Merck & Co., Inc. (NYSE:MRK) delivered strong fourth-quarter results for 2024. Revenue reached $15.6 billion, marking a 7% increase from the same period a year earlier. Merck has solidified its presence in specialty pharmaceuticals and oncology, with its leading cancer treatment, Keytruda, playing a crucial role in cancer care while driving significant revenue growth. Its strong market position has allowed the company to generate robust cash flow, supporting its commitment to returning value to shareholders. In fiscal 2024, Keytruda sales rose 18% year-over-year, reaching $29.5 billion.
Merck & Co., Inc. (NYSE:MRK) offers a quarterly dividend of $0.81 per share and has a dividend yield of 3.40%, as of March 10. The company has been growing its dividends for 14 consecutive years.
Overall, Merck & Co., Inc. (NYSE:MRK) ranks first on our list of the Dobermans of the Dow. While we acknowledge the potential for MRK as an investment, 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 MRK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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