10 Best Dogs of the Dow to Invest In

In this article, we discuss 10 best Dogs of the Dow to invest in. You can skip our detailed analysis of Dogs of the Dow investment strategy and its returns, and go directly to read 5 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. (NYSE:CAT) 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. (NYSE:CAT) 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. (NYSE:CAT) 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. (NYSE:CAT), 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 (NYSE:JNJ), The Coca-Cola Company (NYSE:KO), and Pfizer Inc. (NYSE:PFE), CAT is another member of DJIA which is gaining investors’ attention due to its stable dividends.

Diamond Hill Capital mentioned Caterpillar Inc. (NYSE:CAT) 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 (NYSE:JNJ) 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 (NYSE:JNJ) 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 (NYSE:JNJ) has a safe payout ratio of 62.7%.

In July, Wells Fargo presented a positive stance on Johnson & Johnson (NYSE:JNJ) 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 (NYSE:JNJ), the same as in the previous quarter. These stakes hold a combined value of over $6.7 billion.

Mayar Capital mentioned Johnson & Johnson (NYSE:JNJ) 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 (NYSE:KO), 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 (NYSE:KO) has a payout ratio of 78%.

The Coca-Cola Company (NYSE:KO) 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 (NYSE:KO) 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 (NYSE:KO), 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 (NYSE:KO) in its Q4 2021 investor letter. Here is what the firm had to say:

“Over the last year, we have repositioned our portfolio to navigate the course we see ahead. We added to more defensive areas of the portfolio like consumer staples (Coca-Cola). While the next month or two will likely prove choppy on account of the Omicron variant, we believe that Omicron, like Delta, represents a speed bump on the way to recovery rather than a true change in course. We see strong economic momentum continuing in 2022 and we expect interest rates to rise. After a decade of remarkably low rates, we would not be surprised if this change in direction is accompanied by some fits and starts in the markets. With our emphasis on pricing power, purposeful sector exposure, valuation discipline, and a strong dividend profile, we believe we are well-positioned for the year ahead.”

7. Pfizer Inc. (NYSE:PFE)

Dividend Yield as of August 22: 3.26%

Pfizer Inc. (NYSE:PFE) is a New York-based multinational pharmaceutical and biotech company. It has been a member of DJIA since 2004.

In Q2 2022, Pfizer Inc. (NYSE:PFE) posted revenue of $27.7 billion, which reflected a 53% year-over-year operational growth. The company’s free cash flow for the quarter stood at $7.4 billion and paid $4.5 billion in dividends during the quarter. This shows that its dividends are well-covered within its FCF. In addition to this, the company also used $2 billion to repurchase over 39 million of its shares.

Pfizer Inc. (NYSE:PFE) maintains a 12-year track record of consistent dividend growth. Its quarterly dividend stood at $0.40 per share and has a yield of 3.26%, as of August 22. In August, Barclays lifted its price target on Pfizer Inc. (NYSE:PFE) to $52 and maintained an Equal Weight rating on the shares.

Of the 895 elite funds tracked by Insider Monkey, Pfizer Inc. (NYSE:PFE) was a part of 70 hedge fund portfolios in Q2 2022. The stakes owned by these hedge funds have a total value of over $2.8 billion.

ClearBridge Investments mentioned Pfizer Inc. (NYSE:PFE) in its Q4 2021 investor letter. Here is what the firm has to say:

“While the level of general turnover abated as we progressed through 2021, it remained high in one area: post-COVID-19 recovery plays. The concept behind this investment thesis was, and still is, straightforward: with the advent of effective vaccines, the path from pandemic to endemic is just a matter of time. As this transition occurs, the estimated excess savings of over $2 trillion built up on U.S. consumer balance sheets will unlock dramatic pent-up demand for experiences, especially global travel. This investment case seemed especially compelling when the Pfizer vaccine positively surprised markets in November 2020. As a result, we made post-COVID-19 stocks (which were trading well below our estimate of recovery value) a sizable theme within the portfolio. We understood this to be a more aggressive tilt in positioning because it required a major improvement in demand to catalyze fundamentals and drive price toward higher business values. While we accepted that recovery would not be smooth and that it would take time to deploy vaccines both domestically and globally, we decided that recovery was the logical path of least resistance and we were being well compensated for these risks. (Click here for the full text)

6. JPMorgan Chase & Co. (NYSE:JPM)

Dividend Yield as of August 22: 3.37%

An American multinational investment banking company, JPMorgan Chase & Co. (NYSE:JPM) has raised its dividends for 11 years straight. Its annualized dividend jumped from $1.58 per share in 2014 to $4 per share in 2022. As of August 22, the stock’s dividend yield stood at 3.37%.

In Q2 2022, JPMorgan Chase & Co. (NYSE:JPM) reported revenue of $30.7 billion and its managed revenue came in at $31.6 billion. The bank’s average loans were up by 7% and average deposits grew by 9% during the quarter. It also paid $3 billion worth of dividends to shareholders and repurchased $224 million of common stock in Q2.

In July, Citi upgraded JPMorgan Chase & Co. (NYSE:JPM) to Buy with a $135 price target, highlighting the company’s strong management and sound balance sheet in the current environment. Analysts are also positive about other dividend stocks, such as Johnson & Johnson (NYSE:JNJ), The Coca-Cola Company (NYSE:KO), and Pfizer Inc. (NYSE:PFE).

JPMorgan Chase & Co. (NYSE:JPM) was a part of 104 hedge fund portfolios in Q2 2022, down from 110 in the previous quarter, as shown by Insider Monkey’s data. The stakes owned by these hedge funds have a value of over $5.8 billion. With roughly 8 million shares, Fisher Asset Management was the company’s largest stakeholder in Q2.

Carillon Tower Advisers mentioned JPMorgan Chase & Co. (NYSE:JPM) in its Q1 2022 investor letter. Here is what the firm has to say:

“More cyclical sectors, including technology and consumer discretionary, were among the weakest, likely due to rising interest rates and inflation. It was encouraging to see the quarter finish on a strong note with the S&P 500 only about 5% away from its all-time highs. Shares of JPMorgan Chase (NYSE:JPM) detracted from performance due to the company’s increased expense guidance, announced in January.”

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Disclosure. None. 10 Best Dogs of the Dow to Invest In is originally published on Insider Monkey.

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