It’s time to take a look at the ‘Dogs of the Dow’. Are the highest yielding stocks of the Dow Jones Industrial Average (DJINDICES: ^DJI) undervalued index, great buys — or did their prices fall and dividend yields rise for scary reasons?
|
Stock Do you miss the morning spoon? Wake up with Breakfast news in your inbox every market day. Register for free » |
Dividend yield |
Total return to date |
Price-earnings ratio (P/E) |
|---|---|---|---|
|
Average of the 30 Dow stocks |
1.4% |
38% |
35.0 |
|
Verizon Communications (NYSE: VZ) |
6.3% |
20% |
18.4 |
|
Chevron (NYSE: CVX) |
4.1% |
11% |
17.4 |
|
Amgen (NASDAQ: AMGN) |
3.3% |
(0%) |
35.5 |
Data found via Finviz.com and YCharts on December 5, 2024.
All three of these names were among the ten highest-yielding Dow stocks in early 2024, although only Verizon was in the top three at the time.
Only two of last year’s Dogs of the Dow have outperformed the index itself in 2024. Walgreen Boots Alliance (NASDAQ: WBA) was the highest-yielding Dow share in January. The pharmacy and convenience store conglomerate has since fallen 66% and lost its seat at the Dow Industrials table.
In general, the Dow Jones has become less dividend-oriented lately. The list of index components has not changed between August 2020 and February 2024, but three new names have been added to the list in the past ten months. The highest dividend yield in the group of newcomers is 0.7% for paint store giant Sherwin Williams (NYSE: SHW). The softest dividend among the now former Dow members was Intel‘S (NASDAQ: INTC) 1.5% return – now completely paused.
Using the SPDR Dow Jones Industrial Average ETF (NYSEMKT: DIA) As a guide to the Dow Jones, the index’s dividend yield fell from 1.8% to 1.4% this year.
These recent trends appear unfavorable for the Dogs of the Dow strategy. Could the three biggest returns on today’s list turn the tables in 2025?
Verizon always pays generous dividends, as do most of the leading names in large-scale telecommunications. With modest revenue growth, huge hardware installation and maintenance costs, and $150 billion in long-term debt, it’s no surprise that Verizon is sharing a lot of excess cash profits with its shareholders. Robust dividends are quickly becoming the main attraction for investors as telecom giants mature.
Indeed, the lion’s share of Verizon’s recent returns have been generated by its dividend payments. The total stock return of 20% in 2024 shrinks to 13% if you only look at price gains.
I often think of Verizon (and similar stocks) as an alternative to savings accounts or certificates of deposit. If you’re looking for robust cash payouts and don’t plan to sell the stock anytime soon, you can shrug off Verizon’s weak performance in the stock market. From that perspective, hyper-mature ATMs with slow stock charts could be exactly what an income-seeking investor needs.
However, I don’t expect market-beating returns from Verizon in 2025. If you care about the stock price, it’s probably better to leave Big Red alone and look for better investment ideas elsewhere.
Energy giant Chevron is a surprisingly similar story.
Chevron’s revenue is down 2% in 2024 and operating cash flow is down 1.7%. But the dividend budget increased 5% over the same period, and Chevron still had enough cash flow to reduce its share count through buybacks by 3.7%.
Like Verizon, Chevron is saddled with a huge burden of outdated business operations and an overwhelming need to try new ideas. In the energy sector, that means exploring renewable energy sources, even if that effort undermines the company’s core competency of producing and distributing fossil fuels.
Like Verizon, I would only consider buying Chevron stock if my main desire is for generous dividend payments. This stock’s 11% yield would drop to 6% without the dividend boost.
Can the biotech industry tell a happier story? I’m not so sure.
Drug developer Amgen has lagged the broader market this year, with a sharp decline in November. And that dive was prompted by unfortunate news. Leaked data from a major drug trial showed poor results, raising questions about the obesity treatment’s approval prospects and the transparency of Amgen’s data reports.
This is not my wheelhouse, and some of my fellow Fools with deeper expertise in the healthcare market see Amgen’s crash as a buying opportunity. Still, I find the company’s haphazard data reports bothersome. Is Amgen hiding other weak trial results in hidden spreadsheet tabs, or was this mistake an honest mistake?
I don’t know, and would rather find out from the sidelines. Even the biggest and most solid names in this sector can be incredibly volatile, and drug development projects can only become successful very late in the process.
Amgen could be a bargain if you have a rock-solid understanding of the science behind the headlines. Most investors should probably leave this unpredictable Dow Dog alone, despite a tantalizingly low share price.
Before purchasing stock in Verizon Communications, consider the following:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Verizon Communications wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $872,947!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns December 2, 2024
Anders Bylund has positions at Intel. The Motley Fool holds positions in and recommends Chevron and Intel. The Motley Fool recommends Amgen, Sherwin-Williams, and Verizon Communications and recommends the following options: Short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
Should You Buy the Three Highest Paying Dividend Stocks in the Dow Jones? was originally published by The Motley Fool
