Go against the grain. Swim against the tide. Zig when others zag.
These phrases have become widely known because they describe a common idea that's widely appealing. That's especially the case for investors who realize that taking a contrarian path can lead to market-beating returns.
The "Dogs of the Dow" is a strategy that these investors will probably like. Its premise is to invest each year in the 10 stocks in the Dow Jones Industrial Average with the highest dividend yields. High yields can come from plunging stock prices ("dogs") and the roster of Dow stocks in the doghouse changes quite a bit, as you might expect.
Here are the 2024 Dogs of the Dow -- and which ones are buys right now.
The new Dogs of the Dow
Most of the stocks in the Dow Jones pay dividends. However, these 10 stocks offered the highest dividend yields in the blue-chip index at the end of 2023:
| Stock | Dividend Yield (as of 12/31/23) |
|---|---|
| Walgreens Boots Alliance (WBA +0.00%) | 7.35% |
| Verizon Communications (VZ +0.02%) | 7.06% |
| 3M (MMM +0.04%) | 5.49% |
| Dow (DOW +4.98%) | 5.11% |
| IBM (IBM 2.65%) | 4.06% |
| Chevron (CVX +1.65%) | 4.05% |
| Coca-Cola (KO +0.31%) | 3.12% |
| Amgen (AMGN 0.64%) | 3.12% |
| Cisco Systems (CSCO +2.29%) | 3.09% |
| Johnson & Johnson (JNJ +0.05%) | 3.04% |
Data source: DogsoftheDow.com
Eight of these stocks were in the 2023 Dogs of the Dow and are making a repeat appearance this year. The new members are Coca-Cola and Johnson & Johnson.
The Dogs of the Dow usually deliver subpar performances during the year before they make the list. That's the case with this year's group for the most part. Only IBM delivered a higher return than the Dow Jones Industrial Average in 2023. All of the other stocks, except for Amgen, Dow, and Cisco, sank last year.
Barking up the wrong tree
The goal of the Dogs of the Dow strategy is to beat the market. I'm afraid, though, that several members of the new group are unlikely to do so in 2024.
Walgreens Boots Alliance recently slashed its dividend by nearly half. Although its current dividend yield of 4.4% would still enable the stock to make the Dogs of the Dow list, the dividend cut highlighted serious business challenges for the pharmacy retailer and wholesaler. I'm not confident that Walgreens will return to the winner's column this year.
Speaking of dividend cuts, 3M just might have one in store. The manufacturing giant faces significant cash outlays related to legal settlements. 3M is also spinning off its healthcare segment, which will reduce its ongoing free cash flow. The stock could be a great turnaround story at some point, but whether that story will play out in 2024 is up in the air.
Dow's business is also struggling. The company's sales and profits tumbled year over year in its latest reported quarter. CEO Jim Fitterling acknowledged that Dow is operating "in a challenging macro environment." Maybe that will change this year, but I wouldn't bet on it.
Amgen has several products with growing sales. Its dividend appears to be solid. My concern, though, is that the big biotech simply isn't generating enough growth to be a major winner in 2024.
These dogs can (probably) hunt
I'm cautiously optimistic about the prospects for the other Dogs of the Dow in 2024. Verizon's free cash flow has improved significantly. Artificial intelligence (AI) presents a nice opportunity for IBM. Experts predict that oil prices could rise somewhat this year, which could provide a boost for Chevron.
Coca-Cola's business appeared to pick up momentum in the latter part of 2023 which could extend into 2024. In November, Cisco posted its strongest fiscal-first-quarter results ever based on revenue and profitability. Johnson & Johnson should be poised for stronger growth now that it has spun off its consumer health business.
I think that these six Dogs of the Dow can probably hunt in 2024. I also expect all of them to continue paying attractive dividends that just might land them on the list next year, too.
