We recently compiled a list of the 10 Dogs of the Dow Dividend Stocks to Invest in.In this article, we are going to take a look at where Amgen Inc. (NASDAQ:AMGN) stands against the other dividend stocks.
Dividend-focused investors are often drawn to stocks with high yields, shaping their strategies around acquiring such investments. A notable approach is the Dogs of the Dow (DOD) strategy, which involves selecting the 10 highest dividend-yielding stocks from the Dow Jones Industrial Average (DJIA) each year. This method operates on the belief that these so-called "Dogs" are either undervalued or out of favor. By targeting these stocks, investors hope to benefit from potential price appreciation while also securing a steady stream of dividend income. The strategy is based on the idea that these high-yield stocks are merely temporarily undervalued and are likely to recover shortly.
Numerous financial experts have provided detailed explanations of the strategy to help investors develop a thorough understanding of it. Robert R. Johnson, professor of finance at the Heider College of Business at Creighton University, spoke about the Dogs in one of his interviews with Business Insider. Here are some comments from the analyst:
“The underlying premise behind the strategy is mean reversion. The [Dogs of the Dow] is based on the theory that stocks can be over or undervalued, but over the long run those that are undervalued will 'revert to the mean.”
Dow stocks are typically not inexpensive without reason. These companies rarely face the risk of going out of business, and their high yields often result from falling out of favor. According to a report by Forbes, historically, the Dogs have delivered strong long-term performance, but their recent results have been mixed. While they lagged behind the broader market in 2019, 2020, and 2021, they surged ahead in 2022, only to underperform again in 2023.
However, over the long term, the strategy has managed to outperform its benchmark. Michael O'Higgins found that over a 26-year period, a theoretical portfolio made up of high dividend-yield stocks from the Dow Jones delivered an annualized return of 17.9%. This performance exceeded the Dow Jones Industrial Average's annualized return of 13% during the same timeframe.
A study in the International Journal of Trade, Economics, and Finance analyzed various versions of the DOD strategy and found that they consistently outperformed the DJIA on a risk-adjusted basis. The research explored three DOD variations: Dow-10, Dow-5, and the "Small Dogs of the Dow," while incorporating recent market events like the 2001 dot-com bubble, the 2008 financial crisis, and the subsequent recovery. The study revealed that all three strategies delivered better investment performance than the DJIA between 1996 and 2006. Notably, the traditional Dow-10 portfolio achieved a total return of 406.6% during this time, surpassing the DJIA’s return of 355.6%.
Despite the strong performance of the Dogs, analysts caution investors to approach this strategy with care. Kevin Simpson, founder and chief investment officer at Capital Wealth Planning, made the following comment in one of his interviews with CNBC:
“The idea here is that just because they’re ‘Dogs of the Dow’ — some of them really are dogs — and you have to be careful and selective as a stock picker.”
Our Methodology:
We began with a pool of 30 stocks from the Dow Jones Industrial Average (DJIA) and identified dividend-paying stocks from this selection. As a majority of the stocks in the index offer dividends, we specifically picked the 10 stocks with the highest dividend yields as of December 17. The stocks are ranked in ascending order of their dividend yields. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A pharmacist filling a prescription for a complex drug developed by the company.
An American multinational biopharmaceutical company, Amgen Inc. (NASDAQ:AMGN) ranks third on our list of the best Dogs of the Dow dividend stocks. The company is distinguished by its undervaluation and strong pipeline, especially its experimental obesity drug, MariTide. In its latest earnings report, it highlighted that a Phase 2 study of MariTide is underway in adults with overweight or obesity, with or without Type 2 diabetes mellitus and topline data are expected in late 2024. Plans for a broad Phase 3 program across multiple indications are progressing as scheduled. In addition, a Phase 2 study of MariTide has been initiated to explore its potential for treating Type 2 diabetes in both obese and non-obese patients.
This aspect of the company was also highlighted by PGIM Jennison Health Sciences Fund in its Q2 2024 investor letter. Here is what the firm has to say:
“Amgen Inc. (NASDAQ:AMGN) is a large cap global biotech company with a diverse portfolio of marketed and pipeline products. Amgen’s discovery pipeline had led the company to broaden its focus from oncology, immunology, and renal disease to include musculoskeletal, cardiovascular, and neurologic conditions. In addition, Amgen has turned its expertise in antibody manufacturing into a leading position in the development of biosimilars of competitor drugs. Most recently, Amgen shares advanced in 2Q following its announcement that its novel injectable GLP-1 agonist / GIPR antagonist, MariTide, for obesity showed promising interim Phase 2 data and has shown enough promise to warrant advancement into pivotal trials as soon as late 2024. While Eli Lilly and Novo Nordisk will remain the market leaders in the diabetes / obesity space, we think there is room for Amgen to carve out a meaningful share of the market with its antibody-peptide conjugate approach that could enable monthly or better dosing for MariTide.”
In the third quarter of 2024, Amgen Inc. (NASDAQ:AMGN) reported revenue of $8.5 billion, which showed a 23.1% growth from the same period last year. The company saw double-digit sales growth from ten products. This included $1.2 billion in sales from its rare disease products, driven by several first-in-class, early-stage medicines. The company generated $3.3 billion in free cash flow during the third quarter of 2024, compared to $2.5 billion in the same period in 2023. The increase was fueled by strong business performance and the timing of working capital items, although it was partially offset by lower interest income.
On December 10, Amgen Inc. (NASDAQ:AMGN) declared a 5.8% hike in its quarterly dividend to $2.38 per share. This was the company's 13th consecutive year of dividend growth. It returned $1.2 billion to shareholders through dividends in the most recent quarter. The stock's dividend yield on December 17 came in at 3.56%.
Amgen Inc. (NASDAQ:AMGN) was included in 68 hedge fund portfolios at the end of Q3 2024, compared with 69 in the previous quarter, according to Insider Monkey's database. The stakes held by these funds have a collective value of over $1.7 billion.
Overall AMGN ranks 3rd on our list of the best dogs of the Dow dividend stocks. While we acknowledge the potential of AMGN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMGN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
