The “Dogs of the Dow” strategy is an investment methodology that involves purchasing the highest dividend-yield stocks from the 30 stocks, mostly blue-chip companies, listed under the Dow Jones Industrial Average (“DJIA”).
This strategy is powered by a simple concept. The high-yielding stocks that make up the portfolio are the ones with prices that are lower relative to the dividend paid. This implies that these stocks have underperformed recently. These companies do not stay undervalued for too long as share prices of companies at the bottom of their business cycle appreciate relatively faster than companies at other stages of their business cycles.
Pros & Cons of This Strategy
This particular stock-picking strategy can be considered a dividend-based strategy. Generally, stocks with stable dividend policy are regarded as sound additions to one’s investment portfolio. Dividend-paying stocks carry low risk and are favored as these reduce the overall portfolio risk.
The Dogs of the Dow strategy is easy to implement and does not necessitate continuous monitoring or sound technical analysis. This makes it attractive to passive investors.
However, this strategy completely ignores stocks with high growth potential, which may or may not be dividend-paying.
Let’s Take a Look at the 4 Dogs of the Dow Stocks
We bring four stocks from the ‘Dogs of the Dow’ list that have a dividend yield of more than 2%. These blue-chip stocks have a market capital in excess of $50 billion, have a solid Zacks Industry Rank, and are placed within the top half of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Added to the intrinsic value proposition of these stocks, a healthy dividend yield satisfies the appetite of risk-averse investors. The fact that these stocks have the potential to outperform the market while also historically providing a decent dividend yield has made them prized assets.
Stocks to Keep an Eye on
The Goldman Sachs Group, Inc. GS is a prominent global financial holding company that provides investment banking (IB), securities, investment management and consumer banking services to a diversified customer base.
Goldman Sachs’ focus on the core strengths of IB and trading businesses through restructuring initiatives and opportunistic buyouts will boost its presence in overseas markets. Improvement in global deal-making and underwriting activities and its leading position will likely aid IB's revenue growth. A decent liquidity position will aid capital distribution moves. Its strategic acquisitions continue to help diversify the fee-revenue base, aiding top-line growth.
The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
It has a Zacks Industry Rank #49 (top 20%). The Zacks Consensus Estimate for 2025 earnings has improved by 26 cents to $42.86 in the past 60 days. GS’ long-term earnings growth rate is pegged at 18.5%.
The company’s dividend yield stands at 2.05%. GS has a P/E ratio of 15.78 compared with the industry average of 23.40.
Chevron Corporation CVX is one of the biggest publicly traded oil and gas companies in the world. It is the only energy component of the DJIA.
Chevron is well-positioned as one of the top global integrated oil firms, set for sustainable production growth, particularly due to its dominant position in the lucrative Permian Basin. Further, the planned acquisition of Hess Corporation is expected to significantly solidify Chevron's presence in oil-rich Guyana.
The stock currently has a Zacks Rank #3. It has a Zacks Industry Rank #75 (top 30%). The Zacks Consensus Estimate for CVX’s 2025 earnings is pegged at $11.89 per share, suggesting growth of 13.1% year over year. CVX’s long-term earnings growth rate is pegged at 5%.
The company’s dividend yield stands at 4.37%.
International Business Machines Corporation IBM has evolved as a provider of cloud and data platforms. The Red Hat acquisition, in particular, has helped it strengthen its competitive position in the hybrid cloud market.
IBM is likely to benefit from heterogeneous, dynamic and complex infrastructure strategies, which, in turn, has led firms to undertake a cloud-agnostic and interoperable approach to highly secure multi-cloud management. A combination of a better business mix, improving operating leverage through productivity gains and investments in growth opportunities will likely boost profitability. The company is betting big on the watsonx platform, which is likely to be the core technology platform for its AI capabilities.
The stock carries a Zacks Rank #3. It has a Zacks Industry Rank #85 (top 34%). The Zacks Consensus Estimate for 2025 earnings stands at $10.61, indicating year-over-year growth of 4.8%. IBM’s long-term earnings growth rate is pegged at 4.4%.
The company’s dividend yield stands at 2.91%.
Cisco Systems, Inc CSCO offers identity and access, advanced threat, and unified threat management solutions. It is rapidly expanding its presence in the network security domain.
Cisco’s business model has evolved, with subscription revenues accounting for more than half of its total revenues. The Splunk acquisition enhances its recurring revenue base. The buyout significantly expands Cisco’s portfolio of software-based solutions, contributing more than $4 billion in ARR and making it one of the largest software companies in the world. The launch of AI-powered Hypershield, which combines security and networking, strengthened Cisco’s security portfolio.
The stock carries a Zacks Rank #3. It has a Zacks Industry Rank #46 (top 18%). The Zacks Consensus Estimate for fiscal 2025 earnings stands at $3.64, which has improved by 2.2% in the past 60 days. CSCO’s long-term earnings growth rate is pegged at 4.5%.
The company’s dividend yield stands at 2.74%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
