The Dogs of the Dow are the 10 highest-yielding stocks among the 30 stocks in the Dow Jones Industrial Average.
Many investors hold the yield-oriented Dogs and rebalance their portfolios of 10 stocks at the end of each year. The Dogs are also a contrarian strategy and give investors exposure to financially strong companies that often are unloved by investors.
This could be a good year for the Dogs after the strategy lagged behind the overall index for the fourth year out of the past five during 2021. The Dogs returned 16.3% including dividends in 2021, while the Dow Industrials had a return of 20.9%.
Barron’s has written periodically on the Dow Dogs, including an article in November.
The Dogs for 2022 now have an average yield 3.9%, against 1.8% for the entire index, and include some turnaround stories like IBM (ticker: IBM), Intel (INTC), and Verizon Communications (VZ), as well as out-of-favor drugmakers like Merck (MRK) and Amgen (AMGN). Both Merck and Amgen had total returns of just 1% in 2021.
Here are the dividend yields among the 10 Dogs for 2022 based on Friday’s closing prices, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices: IBM, Verizon and Dow (DOW), 4.9%; Chevron (CVX), 4.6%; Walgreens Boots Alliance (WBA), 3.7%; Merck, 3.6%; Amgen, 3.5%, 3M (MMM), 3.3%; Coca-Cola (KO) 2.8%, and Intel, 2.7%. All the dividend yields on the 10 Dow Dogs look secure.
In addition to high yields, the Dogs tend to have low valuations. Merck, Walgreen, Verizon, and Dow trade for around 10 times projected 2022 earnings. IBM and Chevron have price-to-earnings ratios of 12 and only one of the 10 stocks, Coke, has a P/E above 20, the multiple on the S&P 500 index.
Value investing could be poised to finally best growth stocks in 2022 after a decade of underperformance (including last year) as the economy chugs along and the Federal Reserve likely raises short rates. This could pressure the valuation of growth stocks.
If value shines, so could the Dogs, and investors stand to pocket a nice yield of about 4%. That is comparable to rate on many junk bonds and double the yield on the 30-year Treasury bond.
Write to Andrew Bary at [email protected]