In this article, we will take a look at 10 Dobermans of the Dow to buy.
The Dobermans of the Dow strategy serves as an alternative to the well-known Dogs of the Dow approach, offering a more selective screening process. While the Dogs of the Dow ranks stocks solely based on dividend yield, the Dobermans method prioritizes high-quality companies trading at attractive valuations. The selection process involves two key steps: first, the 30 stocks in the Dow are ranked by Return on Equity (ROE), with the top 20 retained. Then, these 20 companies are further ranked by Free Cash Flow Yield, narrowing the selection to the final ten stocks, which form the Dobermans portfolio. Historically, a hypothetical portfolio following this approach and rebalanced annually has delivered superior performance compared to the Dow, the broader market, and the Dogs of the Dow strategy, according to a report by Forbes. The report further mentioned that since 2000, this methodology has generated a cumulative return of 810%, more than doubling the long-term performance of these benchmarks.
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The significance of dividend stocks is well established, with extensive research examining their long-term performance. A study by Robert Arnott found that over a period of more than 200 years, ending in 2002, the US stock market delivered an average annualized total return of 7.9%, with dividend reinvestment accounting for 5% of that growth. Beyond enhancing overall returns, dividends also provide a buffer during market downturns. Various studies have shown that companies paying dividends tend to experience lower downside risk and recover losses more quickly, ultimately leading to higher risk-adjusted returns over extended investment periods.
Within dividend investing, companies with a consistent track record of dividend growth tend to attract greater investor interest. A report by S&P Dow Jones Indices highlighted that firms with ample cash reserves are better positioned to sustain and expand their operations while continuing to pay stable or increasing dividends. To assess the sustainability of dividends, companies must evaluate whether their payouts are supported by cash generated from operating activities and the availability of free cash flow. Free cash flow is calculated by subtracting capital expenditures—such as spending on property, plants, and equipment (PP&E)—from cash flow generated through operations. Excess cash can be allocated toward dividends, debt reduction, share buybacks, or business expansion.
A positive or growing free cash flow often signals stable or increasing profitability. Since strong free cash flow may indicate a healthy balance sheet, S&P Dow Jones conducted an analysis to determine whether free cash flow yield—measured as annual free cash flow per share divided by stock price—provides valuable insights into investment returns. The underlying investment thesis suggested that all else being equal, companies with a higher free cash flow yield are preferable, as they generate greater free cash income for each dollar invested.
An analysis of the broader market universe, divided into quintiles based on free cash flow yield, revealed that the top-quintile stocks delivered an annualized return of 15.7% between December 1990 and June 2017. This performance exceeded the returns of all other quintiles and outpaced the broader market by an average of 3.6%. While the bottom two quintiles also achieved respectable returns of 11.0% and 8.6% annually, respectively, both underperformed relative to the overall equity market. Given this, we will take a look at Dobermans of the Dow to invest in.
Our Methodology
For this article, we filtered the Dow stocks by Return on Equity, narrowing the list to the top 20. These are then ranked by Free Cash Flow Yield, with the top 10 earning the title “Dobermans of the Dow.” The stocks are ranked according to their free cash flow yield. In cases where multiple stocks had the same free cash flow yield, the number of hedge fund investors was used as a deciding factor. Data on hedge funds was sourced from Insider Monkey’s database, which tracks over 1,000 hedge funds as of Q4 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10. The Procter & Gamble Company (NYSE:PG)
Free Cash Flow Yield: 0.04
Number of Hedge Fund Holders: 79
The Procter & Gamble Company (NYSE:PG) is an Ohio-based multinational consumer goods company that specializes in a broad range of products across various categories, including beauty, grooming, oral care, personal care, fabric and home care, baby and feminine products, and family care. The company exemplifies a recession-resistant stock, as demand for its products remains stable across market cycles, given that consumers rely on them regardless of economic conditions. This consumer staples leader continues to deliver strong growth, with its scale, resilience, and diverse product portfolio making it a reliable choice during economic downturns. Since the start of 2025, the stock has surged by over 6%.
The Procter & Gamble Company (NYSE:PG) reported its fiscal Q2 2025 earnings, posting $21.9 billion in revenue, marking a 2% year-over-year increase and surpassing analyst estimates by over $291 million. Organic sales, which exclude the effects of currency fluctuations, divestitures, and acquisitions, rose by 3%. While the company refrained from implementing price hikes, it managed to drive volume growth, a crucial factor for sustaining long-term revenue. Organic volume increased by 2%, with pricing remaining steady. The baby, feminine, and family care segment performed particularly well, with both organic sales and volume rising by 4%.
The Procter & Gamble Company (NYSE:PG) currently offers a quarterly dividend of $1.0065 per share and has a dividend yield of 2.28%, as of March 10. The company has maintained a strong track record of dividend growth, raising its payouts for 68 consecutive years, backed by a solid cash position. In the most recent quarter, it generated $4.8 billion in operating cash flow, achieving an 84% free cash flow productivity rate. In addition, the company returned $2.4 billion to shareholders through dividends.
9. The Home Depot, Inc. (NYSE:HD)
Free Cash Flow Yield: 0.04
Number of Hedge Fund Holders: 88
The Home Depot, Inc. (NYSE:HD) is an American multinational home improvement company that offers tools, appliances, construction products, and related services. The home improvement industry has generally experienced steady growth, and as the dominant player in the sector, Home Depot benefits from these organic trends. Over the past few years, the company has made significant investments in its stores, digital platforms, and product selection, strengthening its position even amid an inflationary environment. One key initiative has been enhancing its logistics network to improve delivery speed, particularly for large and bulky items. Moreover, the company has pursued strategic acquisitions, with its most recent purchase of SRS Distribution aimed at expanding services for its Pro customers. This move broadens its market reach and creates new opportunities for growth.
The Home Depot, Inc. (NYSE:HD) posted solid fourth-quarter earnings for 2024, with revenue climbing to $39.7 billion—reflecting a year-over-year increase of over 14%. Looking ahead to fiscal 2025, the company expects total sales to grow by approximately 2.8%, while comparable sales are projected to rise by around 1% over the same 52-week period. In addition, the company plans to expand its footprint with roughly 13 new store openings and anticipates a gross margin of about 33.4%.
By the end of the quarter, The Home Depot, Inc. (NYSE:HD) held more than $1.65 billion in cash and cash equivalents. Over the course of fiscal 2024, the company generated close to $20 billion in operating cash flow, reinforcing its financial strength. This stability has enabled it to maintain an uninterrupted streak of dividend payments spanning 152 consecutive quarters. On February 25, the company increased its dividend by 2.2% to $2.30 per share, marking its 15th straight year of dividend growth. Currently, it pays a quarterly dividend of $2.30 per share and has a dividend yield of 2.46%, as of March 10.