Please ensure Javascript is enabled for purposes of website accessibility

Meet the 2021 Dogs of the Dow

By Dan Caplinger - Jan 5, 2021 at 7:07AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Here are the newest stocks to join the portfolio for those using this easy-to-follow strategy.

The Dow Jones Industrial Average (^DJI 0.15%) gets a lot of criticism from academics and Wall Street professionals, who argue that its 30 stocks aren't really a representative sample of the best stocks in the U.S. market. Nevertheless, many investors follow the Dow and its constituents, especially because the blue-chip stocks you'll find there are among the best-known companies in the world.

2020 was a tough year for dividend investors who follow the Dow. New entrant salesforce.com has never paid a dividend, while longtime member Boeing had to suspend its dividend payouts. Moreover, those who follow the dividend-friendly strategy known as the Dogs of the Dow suffered a crushing blow, underperforming the overall Dow considerably. But investors are more optimistic about the Dogs of the Dow for 2021, and now, the stocks that made the final cut are here.

The 2021 Dogs of the Dow

Stock

Dividend Yield

Rank in 2020

Chevron

6.11%

5

IBM

5.18%

3

Dow

5.05%

1

Walgreens

4.69%

8

Verizon

4.27%

4

3M

3.36%

7

Cisco Systems

3.22%

9

Merck (MRK 0.86%)

3.18%

-

Amgen (AMGN 1.14%)

3.06%

-

Coca-Cola

2.99%

10

Source: Yahoo! Finance.

The simple way to find the Dogs of the Dow

Determining the Dogs of the Dow for each new year is easy: Just rank the Dow's 30 stocks by dividend yield and take the top 10. The strategy has investors buy equal amounts of all 10 stocks at the beginning of the year and then hold them through the end of the year. Then, if the components have changed, you sell the stocks that have dropped out and buy the new qualifying stocks.

As you can see above, most of the stocks in the Dogs of the Dow carried over from the 2020 list. A tough year for energy stocks pushed Chevron's share price down far enough for its dividend yield to rise to the top, and poor performance for Walgreens pushed it well up the list as well. The main reason there were any openings at all was that ExxonMobil and Pfizer were removed from the Dow 30 entirely.

Two dogs with smiles and sunglasses on a green grass lawn with toys nearby.

Image source: Getty Images.

2 new Dogs in 2021

It's only fitting that pharmaceutical giant Merck stepped into the No. 8 spot on the Dogs list for 2021. The company is an archrival of Pfizer's, and its stock underperformed both the Dow and Pfizer's own stock in 2020, pushing its dividend yield above the threshold. Merck's dividend yield reflects the ample cash flow from blockbuster drugs in its arsenal, but the company also faces similar pressures to Pfizer in keeping its pipeline of new treatments full. However, Merck is up to the task, and recent wins like the approval of cancer drug Lynparza in Japan have been welcome news.

Meanwhile, biotech pioneer Amgen is brand new to the Dow, adding another healthcare angle to the Dogs. A 5% drop in its stock price reflected the same lack of attention as most companies in the industry that didn't have a COVID-19 vaccine or treatment candidate in the headlines, but Amgen's long-term performance has been strong. Its prospects for 2021 are also encouraging, with blockbusters like osteoporosis fighter Prolia and immunosuppressant drug Enbrel carrying the weight as Amgen works on prospective treatments in high-value areas.

Can the Dogs of the Dow bounce back in 2021?

2020 was a horrible year for the Dogs, which ended the year down almost 13% compared to a 7% rise for the overall Dow. That made two years in a row of underperformance for the strategy, making some question whether it's really a smart way to invest.

However, the Dogs have a value investing orientation, and value investors in general got crushed in 2020. Relative performance between growth and value tends to run in cycles, though, and that gives investors hope that 2021 will be kinder to the kennel of Dog stocks.

For those looking for a simple investing strategy to generate dividend income, the Dogs of the Dow are worth a closer look. They won't always beat the market, but they'll give you the portfolio income you want and the top-name stocks that offer comfort and reassurance to even the most conservative of investors.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amgen Inc. Stock Quote
Amgen Inc.
AMGN
$251.89 (1.14%) $2.85
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,928.62 (0.15%) $48.38
Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
MRK
$94.64 (0.86%) $0.81
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$50.68 (2.03%) $1.01
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$133.80 (2.00%) $2.63
The Coca-Cola Company Stock Quote
The Coca-Cola Company
KO
$64.02 (1.85%) $1.16
The Boeing Company Stock Quote
The Boeing Company
BA
$119.40 (-3.76%) $-4.67
Chevron Corporation Stock Quote
Chevron Corporation
CVX
$172.64 (0.54%) $0.92
Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
XOM
$94.40 (0.54%) $0.51
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$43.77 (0.97%) $0.42
Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$53.41 (1.00%) $0.53
salesforce.com, inc. Stock Quote
salesforce.com, inc.
CRM
$156.93 (-2.12%) $-3.39
Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
WBA
$42.08 (-0.17%) $0.07
3M Company Stock Quote
3M Company
MMM
$145.75 (0.95%) $1.37
Dow Inc. Stock Quote
Dow Inc.
DOW
$67.07 (-0.62%) $0.42

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
334%
 
S&P 500 Returns
117%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.