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Two Attractive “Dogs of the Dow”

The Dogs of the Dow strategy proposes that an investor invests annually in the ten Dow Jones stocks with the highest dividend yield. Proponents of the strategy argue that blue-chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company. The following table ranks the 30 Dow Jones stocks by dividend yield, it includes a variety of other financial metrics, and finally we discuss a two of our favorite Dogs of the Dow right now.

For starters, here is the table of Dow Jones stocks ranked by dividend yield…

1. Verizon Communications (VZ), Yield: 5.0%

Not surprisingly, big-dividend stock Verizon Communications (VZ) currently offers the biggest yield. It’s not surprising because Verizon has faced a variety of challenges lately ranging from the troubled Yahoo acquisition to investors’ preference for growth stocks (not dividend stocks) following the Trump election. In our view, the biggest challenge for Verizon going forward will be adapting to a changing technological landscape. Specifically, as investors cut off their land lines, Verizon must invest heavily to maintain its wireless network while simultaneously finding new growth opportunities to continue supporting its big dividend.

In our view, Verizon is not the same company it used to be as it continues to take on new risks to keep up with the times. Assuming Verizon can adapt, it should be able to support the dividend and achieve some growth and price appreciation. As the table (above) shows, analysts have high growth expectations for the company over the next five years. We believe Verizon will likely be a little more volatile in the future than it was in the past, but we suspect its returns will be nice too. 

For your reference, we’ve written about Verizon a couple times already this year...

We don’t currently own shares, but if you are an income-focused investor, we believe Verizon is worth considering. 

2. Procter & Gamble (PG), Yield: 3.2%

Another Dog of the Dow that we like is Procter & Gamble. And in this case, we do own shares.

Aside from the attractive 3.2% dividend yield, we believe PG’s significant non-US exposure (emerging markets in particular) position the company well for future gains. Specifically, as the US stock market has continued to rally since the financial crisis, and particularly since the Trump election, we believe the rest of the world will follow. It may sound cliché, but a rising tide raises all ships, and the US will lead the rest of the word higher (and this will benefit companies like PG that have a lot of non-US exposure).

In addition to non-US exposure and growth opportunities, we also like PG as it is completing its strategic initiatives whereby it divested of non-strategic brands to form a leaner more profitable firm. We believe the company is now well-positioned to grow efficiently and profitably going forward. As income-focused contrarian investors, Procter & Gamble is another Dog of the Dow that we like, and we currently own.

For reference, you can view all of our current Blue Harbinger holding here.

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