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5 Dogs of the Dow Stocks for 2019

Swarup Gupta
Bed Bath & Beyond (BBBY) saw a big move last session, as its shares jumped nearly 7% on the day, amid huge volumes.

Volatility staged a formidable comeback to the bourses to spook investors this year. The Dow is no exception to this phenomenon, with the index currently down 7.1% year to date. Trade tensions were a major headwind for investors, followed by the Fed’s consistent policy tightening. Strong earnings and a robust economy did boost markets in short bursts, but the overall picture remains gloomy.

Performance During 1Q18

The Dow gained 5.8% in January, riding on the tax cuts passed in December 2018. The end of a government shutdown and strong fourth-quarter earnings were other major catalysts for gains.

The index surged 4.3% in February despite entering correction territory earlier in the month, following a spike in bond yields. However, President Trump signed into law a bipartisan budget deal which fueled monthly gains.

Turbulence struck the Dow in March, with the index declining 3.5% over the month. President Trump imposed $60 billion of tariffs Chinese imports, giving rise to fears of a trade war. At the end of the first quarter the index had lost 2.3%.

Performance During 2Q18

The index gained 0.3% in April even as strong earnings results failed to enthuse investors. Rising bond yields, trade war fears and geopolitical concerns weighed on investor sentiment.

First-quarter earnings finally had an impact in May, with the index gaining 1.1%. However, trade conflicts continue to take a toll on the market resulting in severe volatility. Rising bond yields and geopolitical tensions also weighed on investors.

Trade war fears and a rate hike from the Fed led to the index losing 0.6% in June. However, the index managed to gain 0.7% in the second quarter despite the fact that it was marked by tremendous volatility.

Performance During 3Q18

July was a good month for the Dow, with the index gaining 4.7%. This was its biggest monthly percentage gain since January. Once again, robust earnings boosted stocks as the United States and China imposed tariffs on each other.

The Dow returned 2.2% in August to investors, its second straight monthly gain. Strong second-quarter earnings and solid macroeconomic data buoyed Wall Street’s strong showing over the month.

The index gained 1.9% in September after the Trump administration made crucial tariff-related concessions and economic data remained encouraging. A robust U.S. economy and strong earnings also helped the index increase 9% in the third quarter.

Performance During 4Q18

The index declined 5.1% in October, its biggest monthly drop since January 2016. The trade war with China, soaring bond yields and geopolitical tensions with Saudi Arabia led to losses for Wall Street.

Midterm Congressional election results helped the index gain 1.7% in November, since it has resulted in a divided Congress. Hopes of a resolution to the U.S.-China trade conflict and strong economic data were other major positives.

Currently, the index is down 9.7% over the month and seems to be on track to experience the worst December since 1931. A partial government shutdown and global slowdown worries added to investor concerns this month. The Dow is now down nearly 14% over the fourth quarter and 7.1% year to date.

Dogs of the Dow

Dogs of the Dow, an investment strategy popularized by Michael B. O'Higgins in 1991, has been the darling of yield-seeking investors as it guarantees steady return irrespective of market conditions. How does that happen?

The Dogs of the Dow are essentially the top 10 dividend-paying blue-chip stocks of Dow Jones Industrial Average (DJIA). The built-in dividend income strength and good reputation of these companies ensure a strong price appreciation. But their high dividend is the key attraction.

High dividend yields suggest that these stocks are in the oversold territory and will rebound faster than any other stock when the business cycle changes. This would result in higher capital appreciation over the past one-year period along with juicy yields.

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.

5 High Yielding Dow Stocks

Below we present five stocks from the Dow with the highest dividend yields, each of which also has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

International Business Machines Corp. IBM is benefiting from improving operating efficiency, cost cutting and lower share count. Also, IBM’s improving position in the cloud, security and analytics domains bodes well for investors.

IBM has a dividend yield of 5.56%, higher than the industry average. It has a five-year average dividend yield of 3.31%.

ExxonMobil Corporation XOM has a leading position in the energy industry owing to the size and diversity of its asset base, both in terms of business mix and geographical footprint. With a stable cash position, the company’s balance sheet is one of the best in the industry.

ExxonMobil has a dividend yield of 4.81% compared with the industry average of 3.49%. It has a five-year average dividend yield of 3.42%. 

Verizon Communications Inc. VZ remains poised to benefit from the upcoming 5G boom, led by healthy traction in the wireless business. Focus on online content delivery, mobile video and online advertising should also drive growth.

Verizon has a dividend yield of 4.36%, higher than the industry average.  It has a five-year average dividend yield of 4.57%.

Chevron Corporation CVX financial results greatly improved over the past few quarters, aided by surging production and higher realizations. Further, the company’s existing oil and gas development project pipeline is among the best in the industry.

Chevron has a dividend yield of 4.12%, compared to the industry average of 3.49%. It has a five-year average dividend yield of 3.95%

The Coca-Cola Company KO sports a solid surprise trend, which continued in third-quarter 2018. The company’s strategy of introducing new products, alongside focus on lifting and shifting successful brands globally is aiding performance.

Coca-Cola has a dividend yield of 3.31%, higher than the industry average. It has a five-year average dividend yield of 3.18%. 

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>


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International Business Machines Corporation (IBM) : Free Stock Analysis Report
 
Verizon Communications Inc. (VZ) : Free Stock Analysis Report
 
Coca-Cola Company (The) (KO) : Free Stock Analysis Report
 
Chevron Corporation (CVX) : Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
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