Meet the Full 2016 Dogs of the Dow for Massive Dividends

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At the end of every year, investors look for opportunities and safe harbors in the year ahead. Now that 2015 has turned into 2016, investors who love dividends may want to consider the so-called Dogs of the Dow. Quite simply, this is the 10 highest yielding stocks in the Dow Jones Industrial Average (DJIA). It also turns out that the “Dogs” actually are dogs when you consider that only three of these 10 actually made money for investors on a total return basis in 2015.

24/7 Wall St. has featured each Dog on its own here, with a montage at the end of the report. With seven of these 10 stocks being so negative in 2015, some investors may take even more interest than in prior years.

Keep in mind that 14 strategists see a positive but choppy 2016 for stocks. Now consider than half to two-thirds of total returns for investors actually comes from dividends.

The 2015 Dogs of the Dow yielded closer to 3.6% on average a year ago, but the new list of 2016 Dogs has an average yield of closer to 3.85% — and that 3.85% is closer to the yields of the 2014 Dogs of the Dow.

Some of these stocks are high-yield due to major pullbacks in the underlying stocks. Other dividend yields are high due to companies and sectors simply having high dividends as a part of a return of capital strategy for their shareholders.

Meet the formal 2016 Dogs of the Dow.

Verizon

> Dividend yield: 4.89%
> 2015 closing: $46.22
> 52-week range: $38.06 to $50.86
> Analyst target: $50.12
> Market cap: $188.0 billion

Verizon Communications Inc. (NYSE: VZ) is the top Dog of the Dow for 2016. A year earlier it had been AT&T, but now AT&T is out. Verizon barely outperformed the market in 2015, with a 3.6% total return, but that current 4.89% dividend yield was the single driving force. Verizon is still in a price war, but no one expects its business to come apart. It is also cheaply valued at about 12 times forward earnings, and the $46.22 close implies more than 10% upside for total return in 2016, if analysts are right.


Chevron

> Dividend yield: 4.76%
> 2015 closing: $89.96
> 52-week range: $69.58 to $113.31
> Analyst target: $99.55
> Market cap: $169.3 billion

Chevron Corp. (NYSE: CVX) is another repeat member on the Dogs of the Dow, with a 4.76% yield at the end of 2015. That compares to a dividend yield of about 3.80% this time a year ago. Chevron’s yield is so much higher because of the drop in oil leading its shares lower (down over 16% in 2015) rather than due to aggressive dividend hikes. There is one thing to watch here: Chevron’s actual dividend is higher than 2015 and 2016 earnings per share estimates. That means it is having to dip into cash reserves to pay its shareholders (short of asset sales and cost cuts).

Caterpillar

> Dividend yield: 4.53%
> 2015 closing: $67.96
> 52-week range: $62.99 to $93.57
> Analyst target: $68.19
> Market cap: $39.6 billion

Caterpillar Inc. (NYSE: CAT) has not always been very high on the Dow totem pole for dividends. The stock’s return was almost -23% in 2015, and it would have been worse without the dividend. Caterpillar’s problem is that every commodity market remains under pressure. Also, every growth market is running at slower pace or contraction, and that strong dollar is hurting its ability to export at a time when fewer nations and companies want heavy gear like this. Maybe the infrastructure pact in the United States will smooth things out for Caterpillar.