The top ten dividend paying stocks in the DJIA make up the Dogs of the Dow for 2019. An investment strategy that in theory takes out of much the market risk while delivering higher yields. Not always the case as we saw with GE collapsing further last year.
The top ten dividend paying stocks in the DJIA make up the Dogs of the Dow for 2019. An investment strategy that in theory takes out of much the market risk while delivering higher yields. Not always the case as we saw with GE collapsing further last year. That is the Risk.
What is the Dogs of The Dow Theory
The theory was popularized by Michael B. O’Higgins in 1991. The basis of the theory is the combination of dividend income strength and a blue chip companies lead to a combination of price appreciation and income return through a dividends. The risk however comes from the fact their high dividend yields are from stocks that have fallen out of favor. The theory is that the these stocks are oversold and will rebound faster than any other stock when the business cycle changes.
If all goes well the investor will achieve higher capital appreciation over the past one-year period all the while collecting a higher yield. From 1957 to 2003, the Dogs outperformed the Dow by about 3%, averaging an annual return of 14.3% compared to 11% for the Dow. The performance between 1973 and 1996 was even more impressive, as the Dogs returned 20.3% annually, while the Dow produced a 15.8% return.
For comparsion the yield on the 10-year Treasury was around 2.686% at the time of the stock market close Monday, December 31 2018. The 30-year Treasury’s long bond was yielding 3.02%.
The 2019 Dogs of The Dow
International Business Machines Corp. IBM
- Dividend Yield 5.56%
IBM has been benefiting from improving operating efficiency, cost cutting and a lower share count from stock buybacks. IBM has been improving position in the cloud, security and analytics domains dominated by Amazon and Microsoft. IBM at the end of 2018 has a dividend yield of 5.56%, higher than the industry average of 3.49% and higher than it’s five-year average dividend yield of 3.31%. Risks include the integration of the recent buy of Red Hat, a declining IT business and a new CEO. IBM shares were down under $114 heading into year’s end, down from a 52-week high of $171.13. IBM was last seen down 26% for the year.
ExxonMobil Corporation XOM
- Dividend Yield 4.81%
Exxon has a leading position in the energy industry through oil, natural gas and chemicals with horizontal and vertical integration through the diversity of its asset base and geographical footprint. XOM has a stable cash position with a conservative balance sheet. ExxonMobil has a dividend yield of 4.81% compared with the industry average of 3.49% andhas a five-year average dividend yield of 3.42%. Risks include oil and natural gas prices and the trade war.
Verizon Communications Inc. VZ
- Dividend Yield 4.36%
The shift to 5G is seen as boon to companies like Verizon with traction in the wireless business as on online content delivery, mobile video and online advertising should drive growth. Verizon has a dividend yield of 4.36%, higher than the industry average and a five-year average dividend yield of 4.57%. The risks include 5G and content is saturated in a weakening economy. With AT&T out of the Dow it gets much of the technology investment, further to that Verizon acquired Yahoo and AOL and branded them under Oath, this business model is more straight forward than AT&T with DirecTV and Time Warner. Verizon was one of the few stocks that gained in the Dow the past year, up more than 4% in 2018
Chevron Corporation CVX
- Dividend Yield 4.12%
Chevron has been boosted by surging oil and gas production and higher realizations, however crude oil and gasoline prices collapsed in the last quarter of 2018. Natural gas prices also collapsed in the last week of 2018. With everything being equal CVX existing oil and gas development project pipeline are well positioned for global growth, particularly in LNG. Chevron has a dividend yield of 4.12%, compared to the industry average of 3.49% and a five-year average dividend yield of 3.95%. The risk here is oil and gas prices and the trade war.
- Dividend Yield 3.35%
Pfizer had the highest yield for drug and health stocks at the end of 2018 at 3.35% dividend yield and the stock was up better than 18% in 2018.
The Coca-Cola Company KO
- Dividend Yield 3.31%
Coca Cola strategy of introducing new products along with shifting successful brands globally is aiding performance is both a strength and a weakness. Warren Buffett touts KO as a core holding because of the yield and global presence. Coca-Cola has a dividend yield of 3.31%, higher than the industry average and a five-year average dividend yield of 3.18%.
JPMorgan Chase & Co. JPM
- Dividend Yield 3.30%
JPM likes to hold itself as the king of U.S. banks, had a 3.30% yield and after that huge run up on tax cuts and banking hopes its shares were down over 9% in 2018.
Procter & Gamble PG
- Dividend Yield3.15%
Cisco Systems CSCO
- Dividend Yield 3.10%
Merck & Co. MRK
- Dividend Yield 2.92%
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