10 Best Dogs of the Dow to Invest In

In this article, we discuss 10 best Dogs of the Dow to invest in.

‘Dogs of the Dow’ is an investment strategy that focuses on the highest dividend-yielding stocks in the Dow Jones Industrial Average (DJIA). The strategy got famous in 1991 through Michael B. O’ Higgins’ book titled “Beating the Dow.” The main feature of the strategy is to generate higher returns than DJIA by purchasing high-yielding stocks at the end of the calendar year. In the current market situation, the Dog strategy is garnering investors’ attention as they look to generate stable income.

Historically, the Dogs of the Dow have generated positive returns over the years. According to a report published by CNBC, of the 15 years from 2000 to 2015, the strategy has beaten the Dow in ten years by an average of about 1.3%. In 2015, the index delivered a 2% return to shareholders, while the Dogs gained 4%. Another report by Wall Street Journal throws light on the positive returns of the Dogs in 2013 through December 26. The report says that the Dogs of the Dow gained 34.3% in this period, compared with a 28.9% return of the Dow. In 2022, the strategy is running well so far as investors seek options to generate more income. Through June, the Dogs were down just 1%, compared with a 13.5% decline of DJIA, as reported by a financial services company, Acorns.

Robert Gilliland, a managing director at Concenture Wealth Management, said in his interview with Acorns that dividend-paying companies are important in this market environment, especially those who have raised their dividends over time. In this context, we will discuss the best dogs of the dow to invest in. Some of the major stocks in this category are Johnson & Johnson (NYSE:JNJ), The Coca-Cola Company (NYSE:KO), and Pfizer Inc. (NYSE:PFE) among others that are discussed below.

Photo by Karolina Grabowska from Pexels

Our Methodology:

The stocks mentioned below are high-yielding, blue chip dividend stocks among the 30 components of the Dow Jones Industrial Average. We considered these companies’ dividend histories and balance sheets to determine their dividend sustainability. The stocks are ranked according to their dividend yields, as recorded on August 22.

Best Dogs of the Dow to Invest In

10. Caterpillar Inc. (NYSE:CAT)

Dividend Yield as of August 22: 2.45%

Caterpillar Inc. (NYSE:CAT) is an American multinational company that designs, markets, and sells machinery and related products to customers. The company became one of 30 companies in the Dow Jones Industrial Average in May 1991.

In Q2 2022, Caterpillar Inc. reported revenue of $14.2 billion, showing an 11% year-over-year growth. For the first half of 2022, the company’s operating cash flow stood at $2.5 billion. It returned $1.7 billion to shareholders during the quarter, $600 million of which represented dividend payments. Caterpillar Inc. has been raising its dividends consistently for the past 28 years. The company pays a quarterly dividend of $1.20 per share, raising it by 8% in June. The stock’s dividend yield came in at 2.45%, as of August 22.

In August, Credit Suisse raised its price target on Caterpillar Inc. to $236 with an Outperform rating on the shares, appreciating the company’s strong pricing and aftermarket trends.

At the end of Q2 2022, 45 hedge funds tracked by Insider Monkey owned stakes in Caterpillar Inc., down from 54 in the previous quarter. The collective value of these stakes is over $3.2 billion. Fisher Asset Management held the largest position in the company, with stakes valued at over $1.3 billion.

In addition to Johnson & Johnson, The Coca-Cola Company, and Pfizer Inc., CAT is another member of DJIA which is gaining investors’ attention due to its stable dividends.

Diamond Hill Capital mentioned Caterpillar Inc. in its Q1 2022 investor letter. Here is what the firm has to say:

“We also initiated a position in Caterpillar (NYSE:CAT), one of the world’s leading manufacturers of construction and mining equipment. It’s a company we know well, as we have owned it in our large cap portfolio for quite some time. Recent share price weakness provided an opportunity for us to add it to our large cap concentrated portfolio at an attractive discount to our estimate of intrinsic value. We believe Caterpillar stands to benefit from increased capital investment supported by a healthier/recovering end market environment, particularly in construction and mining.”

9. Johnson & Johnson (NYSE:JNJ)

Dividend Yield as of August 22: 2.67%

An American multinational pharmaceutical company, Johnson & Johnson became a member of the DJIA in 1997. The company held one of the longest dividend growth track records of 60 years and in the last five years, its dividend CAGR stood at 6%. As of August 22, the stock’s dividend yield was recorded at 2.67%.

In Q2 2022, Johnson & Johnson reported strong earnings, posting revenue of $24 billion, which beat estimates by $180 million. The company’s net earnings came in at $4.8 billion. Its cash flow generation also remained strong, reporting $4.7 billion in free cash flow, up from $3.3 billion in the previous quarter. Johnson & Johnson has a safe payout ratio of 62.7%.

In July, Wells Fargo presented a positive stance on Johnson & Johnson and believes that the company is well-positioned to manage the macro headwinds. Given this, the firm raised its price target on the stock to $195 with an Overweight rating on the shares.

As of the close of Q2 2022, 83 hedge funds in Insider Monkey’s database owned stakes in Johnson & Johnson, the same as in the previous quarter. These stakes hold a combined value of over $6.7 billion.

Mayar Capital mentioned Johnson & Johnson in its Q2 2022 investor letter. Here is what the firm has to say:

“J&J is currently our largest position and a long-standing holding. The majority of the group’s sales comes from its collection of pharmaceutical franchises, but a large majority (~45%) comes from its collection of medical device businesses and its consumer brands.

Here’s how JNJ make and spend a dollar of revenues: As of 2021, about 55 cents of that dollar comes from its pharmaceutical sales – sales of drugs to pharmacies and distributors – while 30 cents come from the sale of medical devices, such as surgery equipment and orthopaedics. The rest of that dollar in sales comes from sales of JNJ’s consumer brands such as Listerine mouthwash, Nicorette nicotine tablets and Neutrogena cosmetics.

To make that dollar, however, JNJ typically spends about 25 cents to make the products themselves and another 27 cents on marketing and general administrative functions. This leaves JNJ with about 48 cents on the dollar in profit…” (Click here to see the full text)

8. The Coca-Cola Company (NYSE:KO)

Dividend Yield as of August 22: 2.70%

The Coca-Cola Company, a multinational beverage company, reported strong financials in the first half of 2022. The company’s cash flow from operations stood at $4.5 billion while its free cash flow came in at $4.1 billion. For Fy22, it expects to generate $10.5 billion in free cash flow, which indicates further dividend growth. The Coca-Cola Company has a payout ratio of 78%.

The Coca-Cola Company pays a quarterly dividend of $0.44 per share, with a dividend yield of 2.70%, as of August 22. The company has been raising its dividends consistently for the past 60 years.

In July, JPMorgan mentioned The Coca-Cola Company in its investors’ note, asserting that the stock should continue to work as a defensive holding with strong underlying momentum. Considering this, the firm set a $70 price target on the stock with an Overweight rating on the shares.

At the end of Q2 2022, 60 hedge funds in Insider Monkey’s database owned stakes in The Coca-Cola Company, down from 64 in the previous quarter. These stakes are collectively valued at over $28.3 billion. With stakes worth over $25.1 billion, Berkshire Hathaway owned the largest position in the company in Q2.

ClearBridge Investments mentioned The Coca-Cola Company in its Q4 2021 investor letter. Here is what the firm had to say:

5. Chevron Corporation (NYSE:CVX)

Dividend Yield as of August 22: 3.60%

Chevron Corporation (NYSE:CVX) is an American multinational energy industry company that specializes in renewable fuel.  The company has been growing its dividends consistently for the past 35 years. It pays a quarterly dividend of $1.42 per share, with a yield of 3.60%, as of August 22.

In August, Credit Suisse initiated its coverage of Chevron Corporation with an Outperform rating and a $202 price target, appreciating the company’s strong earnings and a 50% hike in its buyback range.

Berkshire Hathaway owned $23.3 billion worth of stakes in Chevron Corporation in Q2 2022, becoming the company’s largest stakeholder. In addition to this, 59 hedge funds in Insider Monkey’s database owned stakes in the California-based company, up from 53 in the previous quarter. These stakes hold a collective value of over $26 billion.

Diamond Hill Capital mentioned Chevron Corporation in its Q1 2022 investor letter. Here is what the firm has to say:

“Other top contributors in Q1 included multinational energy company Chevron Corp. (NYSE:CVX). The company benefited from increased energy demand as COVID-related economic restrictions eased in tandem with concerns regarding supply interruptions related to Russia’s invasion of Ukraine.”

4. Exxon Mobil Corporation (NYSE:XOM)

Dividend Yield as of August 22: 3.74%

Exxon Mobil Corporation (NYSE:XOM) is one of the world’s leading international oil and gas companies. The company specializes in the production and exploration of crude oil and natural gas. In August, BofA called XOM its top major idea following the company’s strong Q2 earnings and the firm lifted its price target on the stock to $123 with a Buy rating on the shares.

In Q2 2022, Exxon Mobil Corporation reported revenue of $115.6 billion, showing a 70.8% year-over-year growth. The company generated earnings of $17.9 billion and its cash flow from operating activities stood at over $20 billion. It distributed $7.6 billion to shareholders during the quarter, including $3.7 billion in dividends.

On July 27, Exxon Mobil Corporation declared a quarterly dividend of $0.88 per share, in line with its previous dividend. The company has been making dividend payments for the past 100 years while maintaining a 39-year track record of consistent dividend growth. As of August 22, the stock’s dividend yield came in at 3.74%.

At the end of Q2 2022, 72 hedge funds in Insider Monkey’s database owned stakes in Exxon Mobil Corporation, worth over $7.4 billion.

Saturna Capital mentioned Exxon Mobil Corporation in its Q4 2021 investor letter. Here is what the firm has to say:

“Few companies maintain their position at the top for more than a decade or two. One that did was Exxon, which appeared decennially from 1980 through 2010. In 2019 it was ranked 10th, but as of writing has dropped to 39th place.”

3. 3M Company (NYSE:MMM)

Dividend Yield as of August 22: 4.10%

An American mining and manufacturing company, 3M Company (NYSE:MMM) was listed as one of the 30 companies in the DJIA in 1976. The company holds one of the longest dividend growth streaks in the market, raising its dividends for the past 64 years consecutively. Moreover, the company has also been making consistent dividend payments for over 100 years. As of August 22, the stock’s dividend yield stood at 4.10%.

In August, Bernstein assumed its coverage of 3M Company with a Market Perform rating and a $155 price target. The firm appreciated its healthcare segment as the company announced the planned spin-off of its healthcare business by the end of 2023.

As of the end of June 2022, 54 hedge funds tracked by Insider Monkey reported owning stakes in 3M Company, up from 51 in the previous quarter. These stakes hold a collective value of over $1.3 billion. Jim Simons, Ken Griffin, and Ken Fisher were some of the company’s most prominent stakeholders in Q2.

Mayar Capital mentioned 3M Company in its recently-published Q2 2022 investor letter. Here is what the firm has to say:

“We also bought back into 3M (NYSE:MMM) as the stock reached attractive levels. We’d sold our shares in 3M last year when the price exceeded our estimated fair value, and as better opportunities to invest in presented themselves at the time. Nonetheless, we’ve always liked this business with its diversified revenues, its R&D leadership and its stable margins.

2. International Business Machines Corporation (NYSE:IBM)

Dividend Yield as of August 22: 4.77%

International Business Machines Corporation (NYSE:IBM) is a New York-based technology company that provides related services to its consumers. In August, Credit Suisse initiated its coverage of the stock with an Outperform rating and a $163 price target, highlighting the historical outperformance of the IT hardware sector during recessionary periods due to its strong balance sheets and steady cash flows.

In Q2 2022, International Business Machines Corporation reported strong results, posting revenue of $15.5 billion, up 9.3% from the same period last year. The company’s cash generation remained strong in the first half of 2022, with net cash from operating activities standing at $4.6 billion. Its free cash flow came in at $3.3 billion and paid $1.5 billion in dividends to shareholders, reflecting secure dividend payments.

International Business Machines Corporation currently pays a quarterly dividend of $1.65 per share and has a dividend yield of 4.77%, as of August 22. The company maintains a 27-year track record of dividend growth.

At the end of Q2 2022, 40 hedge funds tracked by Insider Monkey owned investments in International Business Machines Corporation, valued at over $948.3 million.

St. James Investment Company mentioned International Business Machines Corporation in its Q4 2021 investor letter. Here is what the firm had to say:

“IBM was not the first company to build computers. The distinction belongs to Sperry-Rand’s subsidiary UNIVAC, which introduced the first commercially successful computers in the early 1950s. In this era, IBM did possess the largest research and development department of the business machines industry and quickly caught up, introducing cost-competitive computers a few years after UNIVAC. By the late 1950s, IBM held the dominant market share in computers. IBM also touted a vastly superior sales organization, which used a sales tactic called “paper machines” (the equivalent of today’s “vaporware”). If a competitor’s product was selling well in a market segment that IBM had yet to penetrate, the company would announce a competing product and start taking orders for the “paper machine” long before it was available.

One cannot overstate how powerful IBM was in the computer industry in the 1950s and 1960s. Every competitor rightly worried that if their product worked too well for too long, it was only a matter of time before an army of IBM salesforce representatives mobilized. In their easily recognizable uniforms of starched white shirts, red ties and blue suits, IBM marketers marched on their customers and offered a more expensive, but much more defensible, choice. “Nobody gets fired for buying IBM” was a common phrase. Even competitors acknowledged that the company excelled at sales. As a UNIVAC executive once complained, ‘It doesn’t do much good to build a better mousetrap if the other guy selling mousetraps has five times as many salesmen.’” (Click here to see the full text)

1. Walgreens Boots Alliance, Inc. (NASDAQ:WBA)

Dividend Yield as of August 22: 5.02%

Walgreens Boots Alliance, Inc. (NASDAQ:WBA), an Illinois-based pharmaceutical company, hiked its quarterly dividend by 0.5% in July to $0.48 per share. This marked the company’s 47th consecutive year of dividend growth. As of August 22, the stock’s dividend yield stood at 5.02%.

In fiscal Q3 2022, Walgreens Boots Alliance, Inc. reported net cash provided by operating activities of $1.6 billion and its free cash flow stood at $1.3 billion. The company’s cash position also remained stable, reporting nearly $2.3 billion in cash and cash equivalents and $18.8 billion in total assets.

Walgreens Boots Alliance, Inc. was a popular stock among elite funds in Q2 2022, as 40 hedge funds in Insider Monkey’s database owned stakes in the company, up from 38 in the previous quarter. These stakes have a total value of nearly $600 million.

Miller Howard Investments mentioned Walgreens Boots Alliance, Inc. in its Q3 2021 investor letter. Here is what the firm had to say:

“While optimistic about a recovery, we continue to balance our cyclical holdings with dividend-payers in stable, less economically-sensitive industries. We took a position in Walgreens (WBA) based on its low valuation, high dividend yield, and stable business model.”

You can also take a look at 10 Large-Cap Dividend Stocks with Over 5% Yield and 10 Small-Cap Stocks that Pay Dividends

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This article is originally published at Insider Monkey.