24/7 Wall St.

At the end of every year, myriad strategies are announced for the coming year. With investors continuing to love dividends, one strategy that is reviewed every year is the so-called Dogs of the Dow. Quite simply, this is the five highest yielding stocks in the Dow Jones Industrial Average.

Some measure the Dogs of the Dow as the 10 highest yielding Dow stocks. Due to the drop-off in yields from the fifth to the tenth places (and the fifth place being close to a dead tie), 24/7 Wall St. has decided to focus on the five highest yielding Dow stocks — but six companies reviewed here due to that near-tie for fifth place.

What is interesting about the Dogs of the Dow is that each year this list can change handily. Some stocks are high yield due to major pullbacks in the underlying stock. 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.

The preliminary list of the Dogs of the Dow is of course subject to change. There are still two weeks of trading before year’s end, albeit the participation will start to be low and the number of trading sessions is few.

24/7 Wall St. has included the most likely Dogs of the Dow, with dividend yields, 2015 performance, forward price-to-earnings (P/E) ratios, trading history and more. Color has also been added on each. Also, here is a look back at our 2015 Dogs of the Dow.

Verizon Communications

Verizon Communications Inc. (NYSE: VZ) has been a continual member of the Dow’s dogs because of a high dividend, but rival AT&T Inc. (NYSE: T) had an even higher dividend yield, though it was booted off the Dow earlier in 2015. Still, Verizon is now the highest yielding Dow stock, with close to a 5% yield (4.96%). Verizon slowly has raised its dividend all year, and the dividend yield this time a year ago was 4.60%. Verizon shares were last seen up 2.1% in 2015, thanks to its dividend.

Shares of Verizon recently closed at $45.56, with a consensus analyst price target of $50.12 and a 52-week trading range of $38.06 to $50.86. The company has a market cap of $185 billion. Looking ahead to 2016 earnings, Verizon has a multiple of 11.4, compared to the current price.

Chevron

Another repeat offender on the Dogs of the Dow, Chevron Corp. (NYSE: CVX) has a 4.77% yield at the end of 2015. That compares to a dividend yield of 3.80% this time a year ago. Chevron’s yield is so much higher because of the drop in oil leading its shares lower. Chevron’s shares were last seen down 16% so far in 2015. One additional note is that some investors have begun to worry about oil and gas dividends ahead. Could Chevron’s dividend be at risk?

Chevron shares closed recently at $89.81, with a consensus price target of $98.64 and a 52-week trading range of $69.58 to $114.45. The market cap is $169 billion. Looking ahead to 2016 earnings, Chevron has a multiple of 26 compared to the current price.
Caterpillar

Caterpillar Inc. (NYSE: CAT) has not always been very high on the Dow totem pole for dividends, but its stock drop has been harsh for more than just 2015. Its yield is now listed as 4.73%, but that has been artificially juiced due to shares being down more than 26% so far in 2015. The problem here is that every commodity market remains under pressure, and every growth market is running at far less growth (or contraction). Caterpillar is a great company, but its sales are also suffering from the strong dollar.

Shares of Caterpillar closed Friday at $65.11. The consensus price target is $68.29, and the 52-week trading range is $62.99 to $94.66. It has a market cap of $38 billion. Looking ahead to 2016 earnings, Caterpillar’s forward P/E is 18.1 that might not sound cheap, considering the business cycle pressure.

IBM

Though it has raised its dividend and keeps buying back stock, International Business Machines Corp. (NYSE: IBM) is a Dogs of the Dow member due to poor performance. IBM shares were last seen down 13% so far in 2015 and its 3.85% dividend yield may not be enough to stave off declining core business concerns and lower backlogs. IBM just cannot grow its new efforts fast enough to make a huge dent.

Big Blue’s shares recently closed at $134.90, within a 52-week trading range of $131.65 to $176.30. The consensus price target is $148.05, and the company has a market cap of $131 billion. Looking ahead to 2016 earnings, IBM has what sounds and feels like a forward P/E ratio of about 9. Unfortunately, many investors have argued that this is a value trap rather than a value stock.

Runners-Up, a Coin Toss

24/7 Wall St. has to feature two companies here for the fifth Dogs of the Dow because their yields are so close together that it will be a coin toss over which one is in the top five yields. Pfizer Inc. (NYSE: PFE) is currently in a virtual tie with Exxon Mobil Corp. (NYSE: XOM): Pfizer is at 3.75% and Exxon is at 3.78%. What makes this even harder to judge is that Pfizer has just raised its dividend to $0.30 from $0.28 per share, and that is not payable until late in the first quarter. That being said, we will leave the verdict up to fate without declaring a winner.

Pfizer shares have been up just over 6% so far in 2015, with more than half of that coming from its dividend. The patent cliff has just killed Pfizer, but how this company is treated ahead during an effort for overseas acquisitions (and possible tax inversions) could ultimately threaten its position as a member of the 30 Dow stocks.

Pfizer shares closed Friday at $31.99, with a consensus price target of $40.44 and a 52-week range of $28.47 to $36.46. Its market cap is $197.5 billion. Looking ahead to 2016 earnings, Pfizer has a multiple of 13.6, compared to the current price.

Exxon Mobil has suffered from lower oil and gas prices, just like Chevron. Its yield is far lower than Chevron, but that is because Exxon is believed to have better dividend insulation while it has been buying back stock. Exxon shares were last seen down about 13.5% so far in 2015.

Shares of Exxon ended last week at $77.28. The consensus price target is $83.52 and the 52-week range is $66.55 to $95.18. The market cap is roughly $322 billion. Looking ahead to 2016 earnings, Exxon’s multiple is 20.8, compared to the current price.

Again, the actual Dogs of the Dow remain up for grabs. A lot can happen at year-end, and the same pressures that have been present for 2015 appear to be ongoing pressures for 2016. Low international market participation, a strong dollar hurting U.S. exports and the same global pressures weigh. Stay tuned.