A new year is approaching, and that means investors are about to start hearing a lot more about dogs. That's because of the popular investing strategy called "the Dogs of the Dow," which focuses on buying the 10 Dow Jones Industrial Average components that have the highest yields. Because share prices and dividend yields generally move in opposite directions (absent a large change to a company's payout), the blue-chip stocks with the highest yields will likely have performed poorly in the past calendar year and could be trading at attractive valuations.
But we don't have to wait until the official end of 2023 to search for values in the Dow, whether they count as "dogs" or not. We can already see some good reasons to buy Procter & Gamble (PG 0.28%), Coca-Cola (KO -0.51%), and Nike (NKE -0.36%) for 2024 and beyond. Let's find out a bit more about these three beaten-down Dow stocks.
1. Procter & Gamble
Procter & Gamble's 5% year-to-date stock price decline through mid-December was weak enough to make it the seventh-worst-performing stock on the Dow in 2023. That's as compared to the index's 12% rally over the same time.
That sell-off was not enough to earn P&G a spot on the Dogs of the Dow list -- its yield is just 2.6%. However, it still seems overdone given the consumer staples giant's strong operating and financial momentum. Organic sales were up 7% in its fiscal 2024 Q1 (which ended Sept. 30), putting P&G on track to hit the high end of management's fiscal year growth outlook. Revenue should rise by about 5% this fiscal year after expanding by 7% in fiscal 2023.
On the downside, P&G is struggling to boost organic sales volumes, and so it has had to rely entirely on rising prices to boost overall revenue. Yet a return to growth on this metric, along with the stock's 2.6% dividend yield, would power solid returns from here for patient investors.
2. Coca-Cola
Coke's stock slump in 2023 just doesn't make sense. The beverage titan is winning market share, boosting sales, and generating sparkling profits. Yet the stock has dropped 7% through mid-December, making it the fifth-worst performer on the index.
Investors shouldn't waste time trying to find a good reason for Coke's share price decline, but instead should consider capitalizing on it. You can own this Dividend King for less than 6 times annual sales, down from a 2023 high valuation of closer to 7 times sales. Coke has only been valued this cheaply a handful of times over the past decade.
The stock's yield at its current share price is over 3% today, putting Coke in the top 10 on the Dow by that metric. There are plenty of resources behind that dividend payment. Coke's profit margin is a blazing 30% of sales or roughly double Pepsico's rate.
3. Nike
Nike's position in the footwear industry has made it an unpopular choice among investors in 2023. Shares have gained just 4% this year, which makes it the 12th worst performer on the index. That weak outing makes sense because its retail niche has been shrinking and is becoming more price-competitive. Retailers like Foot Locker have seen their profit margins dive due to aggressive price cuts by rivals.
Yet Nike's exposure to this problem is limited. It has done a great job slashing inventory in recent quarters, easing pricing pressure on the business. And Nike's focus on innovation provides another lift. Pre-tax earnings last quarter slipped only slightly, falling to 13% from 15% in the prior-year period.
Investors can find faster-growing, more profitable stocks in this niche. Lululemon Athletica is a prime example. But with Nike, you get a lower valuation, plus a modest dividend that yields 1.2% and that is likely to rise for many years to come.
