Monday, March 4, 2024

Meet the 2024 Dogs of the Dow

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After the bear market in 2022, 2023 brought a pleasant surprise for many investors. Big gains in the Nasdaq Composite and S&P 500 led to closes for the year near record levels.

The Dow Jones Industrial Average (DJINDICES: ^DJI) actually managed to set all-time records on several occasions late in December. However, its gains of roughly 14% for the year were smaller than what those who invested in broader indexes earned. And for those who followed a popular strategy called the Dogs of the Dow, 2023 was even more disappointing, as it underperformed the Dow significantly.

Two dogs in a basket.

Image source: Getty Images.

Yet, investors are hopeful that 2024 will bring a return to the past successes of the Dogs of the Dow strategy. Below, you’ll see the 10 stocks that qualify as the 2024 Dogs of the Dow, and you’ll also get a preview of what some of these companies are looking forward to in the coming year.

The 2024 Dogs of the Dow

Stock

Dividend Yield

Rank in 2023

Walgreens

7.21%

4

Verizon

7.13%

1

3M

5.52%

5

Dow Inc.

5.03%

2

IBM

4.06%

6

Chevron

3.98%

9

Amgen

3.14%

7

Coca-Cola (NYSE: KO)

3.13%

Cisco Systems

3.09%

8

Johnson & Johnson (NYSE: JNJ)

3.04%

Data source: DogsoftheDow.com.

The basics of the Dogs of the Dow strategy

Many investors love the Dogs of the Dow because it’s so easy to follow. All you have to do is look which 10 stocks among the 30 Dow Jones Industrials components have the highest dividend yield on the last day of the year. Then, invest an equal amount in each of those 10 top-yielding stocks, and hold those investments through the end of the subsequent year.

When the end of the year comes, you can either abandon the Dogs of the Dow strategy entirely, or you can repeat it for the following year. If you choose to stick with the Dogs of the Dow, you’ll just need to rebalance to account for relative performance of the 10 stocks, along with replacing any stocks whose yields have fallen below the threshold for Dogs of the Dow eligibility with those whose yields have risen sufficiently to take their place.

What’s new with the Dogs of the Dow in 2024?

The two stocks set to join the 2024 Dogs of the Dow list both struggled in 2023. Coca-Cola rejoined the group after a one-year hiatus, as 2022’s preference for consumer staples stocks gave way to concerns about their ability to withstand inflationary pressures and maintain cost discipline. Moreover, with hopes for a return to a faster-growth environment for sectors like technology, Coca-Cola’s reliable yet mature business suffered in terms of relative appeal, finishing the year down about 8%.

Similarly, Johnson & Johnson lost ground as the healthcare giant shrank in scope. The successful spinoff of its Kenvue (NYSE: KVUE) consumer health products business left J&J with its higher-growth pharmaceutical and medical device units. However, lingering worries over litigation related to its talc baby powder products held back the company despite modest gains in its dividend yield.

By contrast, the stocks exiting the Dogs of the Dow in 2024 did great in 2023. JPMorgan Chase (NYSE: JPM) exited after just a one-year term on the list, posting gains of over 25% as the Wall Street banking giant overcame industry pressures early in the year and took advantage of massive disruptions to make opportunistic purchases of valuable assets. Intel (NASDAQ: INTC) fared even better, seeing its shares soar over 90% amid signs that even the long-lagging chipmaker might participate in the boom in artificial intelligence.

Can 2024 be a winner for the Dogs of the Dow?

The Dogs of the Dow strategy lagged the regular Dow Jones Industrials by about four percentage points in 2023. However, the underperformance wasn’t quite as bad as it looked, because the higher dividend yield on Dogs of the Dow stocks cut the gap in half in terms of total returns. Nevertheless, the strategy underperformed the Dow for the fourth time in five years.

Yet, many investors are hopeful that the value stocks that tend to get included in the Dogs of the Dow are primed for a big bounce in 2024. After having paid so much attention to high-growth tech stocks, a rotation would be highly beneficial for other sectors of the market — particularly those that the Dogs strategy tends to highlight. Add to that the simplicity of the strategy, and it’s easy to understand why so many people will follow the Dogs of the Dow throughout the coming year and beyond.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Dan Caplinger has positions in JPMorgan Chase. The Motley Fool has positions in and recommends Cisco Systems, JPMorgan Chase, and Kenvue. The Motley Fool recommends 3M, Amgen, Chevron, Intel, International Business Machines, Johnson & Johnson, and Verizon Communications and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2024 $47.50 calls on Coca-Cola, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.

Meet the 2024 Dogs of the Dow was originally published by The Motley Fool

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