It's time to take a look at the "Dogs of the Dow." Are the highest-yielding stocks of the Dow Jones Industrial Average (^DJI 0.63%) index undervalued, fantastic buys -- or did their prices fall and dividend yields soar for scary reasons?
|
Stock |
Dividend Yield |
Year-to-Date Total Return |
Price-to-Earnings Ratio (P/E) |
|---|---|---|---|
|
Average among the 30 Dow stocks |
1.4% |
38% |
35.0 |
|
Verizon Communications (VZ 0.74%) |
6.3% |
20% |
18.4 |
|
Chevron (CVX 1.44%) |
4.1% |
11% |
17.4 |
|
Amgen (AMGN 0.61%) |
3.3% |
(0%) |
35.5 |
Data found via Finviz.com and YCharts on Dec. 5, 2024.
How last year's Dogs are faring in 2024
All three of these names were among the 10 highest-yielding Dow stocks at the start of 2024, though only Verizon parked in the top 3 at the time.
Only two of last year's Dogs of the Dow have outperformed the index itself in 2024. Walgreen Boots Alliance (WBA +0.00%) was the highest-yielding Dow stock in January. The pharmacy and convenience store conglomerate has fallen 66% since then and has lost its seat at the Dow Industrials table.
Generally speaking, the Dow has recently become less dividend-focused. The list of index components didn't change from August 2020 to February 2024, but three new names joined the list in the last 10 months. The highest dividend yield in the group of newcomers is 0.7% for paint store giant Sherwin-Williams (SHW 1.06%). The softest dividend from the now-former Dow members was Intel's (INTC 3.03%) 1.5% yield -- now entirely paused.
Using the SPDR Dow Jones Industrial Average ETF (DIA 0.63%) as a proxy for the Dow, the index's dividend yield fell from 1.8% to 1.4% year to date.
These recent trends look unfavorable for the Dogs of the Dow strategy. Can the top three yielders on today's list turn the tables in 2025?
NYSE: VZ
Key Data Points
Verizon is all about the dividend
Verizon always pays generous dividends, as do most of the leading names in large-scale telecommunications. With modest revenue growth, massive hardware installation and maintenance costs, and $150 billion of long-term debt, it's no surprise to see Verizon share lots of surplus cash profits with its shareholders. Beefy dividends quickly become the main investor attraction as telecom giants mature.
The lion's share of Verizon's recent returns were indeed generated by the dividend payouts. The stock's total 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 any time soon, you can shrug off Verizon's weak stock market performance. From that perspective, hypermature cash machines with slow stock charts might be just 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 find better investment ideas elsewhere.
NYSE: CVX
Key Data Points
Chevron is another pure income play
Energy giant Chevron is a surprisingly similar story.
Chevron's top-line sales are down 2% in 2024, and operating cash flow is 1.7% lower. But the dividend budget is up by 5% over the same period, and Chevron still had enough cash flow to reduce its share count by 3.7% via buybacks.
Like Verizon, Chevron is saddled with a huge burden of legacy business operations and an overwhelming need to try new ideas. In the energy sector, that means researching renewable energy sources, even if that effort undermines the company's core competency of producing and distributing fossil fuels.
Also like Verizon, I would consider buying Chevron stock only if I craved generous dividend payouts above all else. This stock's 11% returns would drop to 6% without the dividend boost.
NASDAQ: AMGN
Key Data Points
Amgen looks risky, even at a discount
Can the biotech industry tell a happier tale? I'm not so sure.
Drug developer Amgen has lagged behind the broader market this year, with a sharp drop in November. And that plunge was inspired by some unfortunate news. Leaked data from an important drug trial showed poor results, raising questions about the obesity treatment's approval prospects and about 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 troublesome. Is Amgen hiding other weak trial results in hidden spreadsheet tabs, or was this error an honest mistake?
I don't know, and would prefer to find out from the sidelines. Even the largest and most solid names in this sector can be incredibly volatile, and drug development projects can't be slam-dunk wins until very late in the process.
Amgen might be a buy if you have a rock-solid understanding of the science behind the headlines. Most investors are probably better off leaving this unpredictable Dow Dog alone despite a temptingly low stock price.
