Investing

Highest Yielding Dogs of the Dow Could Be Massive Total Return Winners for 2024

Lee Jackson

Published: December 5, 2023 10:53 am

Last Updated: December 8, 2023 8:43 am

The ‘Dogs of the Dow’ is a well-known strategy first published in 1991 by Michael Higgins. The strategy seeks to maximize the yield of investments by buying the ten highest-paying dividend stocks available from the Dow Jones Industrial Average each year. The highest-yielding stocks are also the lowest-priced stocks in the venerable average, as the lower a stock (or bond) goes in price, the higher the attached yield or coupon becomes.

We decided to see how this year’s group is fairing as we have just a month left for 2023. While the stocks in the group have changed since the start of the year, the reality is that they also have become an excellent contrarian idea in a market that is very overbought in an economy that could suffer six months from now.

With the Nasdaq up over 37% and the S&P 500 up 19.2%, investors are trying to play catch-up on the big tech giants that have been driving the market rally and may be trying to pick up nickels in front of a bulldozer as the lion’s share of the big money has been made.

Here are the current five highest-yielding “Dogs of the Dow” listed in order of the highest yield.

Walgreens Boots Alliance

This huge drugstore chain is a safe retail play for investors looking to add health care now and trades at a very cheap 7.5 times 2023 earnings expectations. Walgreens Boots Alliance (NYSE: WBA) is a pharmacy-led health and beauty retail company.

The company operates through three segments:

• Retail Pharmacy USA
• Retail Pharmacy International
• Pharmaceutical Wholesale

The Retail Pharmacy USA segment sells prescription drugs and various retail products, including health, wellness, beauty, personal care, consumables, and general merchandise, through its retail drugstores. It also provides specialty pharmacy and mail services; this segment operates nearly 10,000 retail stores under the Walgreens and Duane Reade brands in the United States and six specialty pharmacies.

The Retail Pharmacy International segment sells prescription drugs, health and wellness, beauty, personal care, and other consumer products through its pharmacy-led health and beauty stores and optical practices, as well as through boots.com and an integrated mobile application. This segment operated 4,428 retail stores under the Boots, Benavides, and Ahumada in the United Kingdom, Thailand, Norway, the Republic of Ireland, the Netherlands, Mexico, and Chile, and 550 optical practices, including 165 on a franchise basis.

The Pharmaceutical Wholesale segment engages in the wholesale and distribution of specialty and generic pharmaceuticals, health and beauty products, and home healthcare supplies and equipment, as well as provides related services to pharmacies and other healthcare providers.

Verizon Communications

This top telecommunications company offers tremendous value while paying a 7.11% dividend. Verizon Communications, Inc (NYSE: VZ) is one of the largest US telecom companies. It provides wireless and wireline services to retail, enterprise, and wholesale customers.

The company’s wireless network serves approximately 120 million mobile connections with 115 million postpaid subscribers. Verizon’s wireline business has undergone a period of secular decline due to wireless substitution and cable competition.

Verizon also provides converged communications, information, and entertainment services over America’s most advanced fiber-optic network and delivers integrated business solutions to customers worldwide.

Verizon and the other big telecom giants have been mauled this year over concerns over lead phone lines, and while this could keep a lid on the stock in the near term, many feel it’s the best buying opportunity in years.

3M

This legacy industrial giant could jump with continued economic pick-up, and the shares are down big this year while paying investors a 6.25% dividend. 3M Company (NYSE: MMM) provides diversified technology services in the United States and internationally.

3M operates through four segments:

• Safety and Industrial
• Transportation and Electronics
• Health Care
• Consumer

The Safety and Industrial segment offers industrial abrasives and finishing for metalworking applications; auto body repair solutions; closure systems for personal hygiene products, masking, and packaging materials; electrical products and materials for construction and maintenance, power distribution, and electrical original equipment manufacturers; structural adhesives and tapes; respiratory, hearing, eye, and fall protection solutions; and natural and color-coated mineral granules for shingles.

The Transportation and Electronics segment provides ceramic solutions; attachment tapes, films, sound, and temperature management for vehicles; premium large format graphic films for advertising and fleet signage; light management films and electronics assembly solutions; packaging and interconnection solutions; and reflective signage for highway, and vehicle safety.

The Healthcare segment offers healthcare procedure coding and reimbursement software; skin, wound care, and infection prevention products and solutions; dentistry and orthodontic solutions; and filtration and purification systems.

The Consumer segment provides consumer bandages, braces, supports, and consumer respirators; cleaning products for the home; retail abrasives, paint accessories, car care DIY products, picture hanging, and consumer air quality solutions; and stationery products.

Dow

This company was spun out from Dupont in 2019 and offers investors growth income potential with a hefty 5.42% dividend. Dow Inc. (NYSE: DOW) is a leading materials science company formed due to the merger of Dow and DuPont in 2017 and subsequent spin in 2019.

The company is organized into three principal divisions:

• Performance Materials and coatings (23% of EBITDA)
• Industrial Intermediates and infrastructure (27%)
• Packaging and specialty Plastics (51%)

The Company’s segments include Agricultural Sciences, which provides crop protection, seed/plant biotechnology products and technologies, urban pest management solutions, and healthy oils.

Consumer Solutions, which consists of Consumer Care, Dow Automotive Systems, Dow Electronic Materials, and Consumer Solutions-Silicones businesses;

Infrastructure Solutions comprises Dow Building & Construction, Dow Coating Materials, Energy & Water Solutions, Performance Monomers, and Infrastructure Solutions-Silicones businesses.

Performance Materials & Chemicals, which consists of Chlor-Alkali and Vinyl, Industrial Solutions and Polyurethanes businesses

Performance Plastics consists of Dow Elastomers, Dow Electrical and Telecommunications, Dow Packaging and Specialty Plastics, and Energy and Hydrocarbons businesses.

International Business Machines

This blue-chip giant still offers investors an excellent entry point and a massive 4.28% dividend. International Business Machines (NYSE: IBM) provides integrated solutions and services worldwide.

IBM operates through four business segments:

• Software
• Consulting
• Infrastructure
• Financing

The software segment offers hybrid cloud platforms and software solutions, such as Red Hat, an enterprise open-source solution;

• Software for business automation
• AIOps and management
• Integration and application servers;
• Data and artificial intelligence solutions
• Security software and services for threat, data, and identity.

The consulting segment offers business transformation services, including strategy,

• Business process design and operations
• Data and analytics
• System integration,
• Technology consulting, and
• Application and cloud platform services.

Meanwhile, the financing segment offers lease, installment payment, loan financing, and short-term working capital financing services.

Again, it’s important to remember that the rampage the market has been on this year comes right into the headwind of a 5.5% increase in the fed-funds rate over the last 16 months. The tricky part for investors is when the rate of growth will put a dent in the economy, and while that remains unknown, history says it will indeed happen.