Meet the 2019 Dogs of the Dow

Investors love their dividends. It was no secret that the bull market’s strength and reputation heading into the end of 2018 was tarnished. In fact, on the last trading day of 2018, the Dow Jones industrial average performance was at −6.7%. And with six recent days of the Dow being down over 300 points, the Dow also managed to post its greatest one-day gain ever. This can drive investors nuts, and when investors go nuts they often commit their new capital into defensive stocks with huge market capitalizations and with big dividends.

This is where the so-called Dogs of the Dow come into play. Quite simply, this is the 10 highest yielding Dow stocks of all 30. Some of these make the list yearly, but some make the list because their shares performed poorly. For the record, this list was still not final and the performance metrics and the analyst targets from Thomson Reuters were all still unofficial for the year’s closing prices.

24/7 Wall St. and its founders have tracked the Dogs of the Dow strategy for years now. Short-term interest rates have risen in 2018, after having risen in 2017, but long-term rates remain lower than many strategists would have expected. Those Treasury rates also still look quite low by historical standards beyond the past decade. Entering 2019, more investors are worried that interest rates are going to keep rising in 2019.

For a reference, the yield on the 10-year Treasury was just 2.686% late on Monday, with the 30-year Treasury’s long bond yielding 3.02%. That means the Dogs all paid better dividends than the 10-year Treasury and most outyielded the 30-year Treasury.

International Business Machines Corp. (NYSE: IBM) may still have a $106 billion market cap, but its poor stock performance in 2018 gave it the biggest dividend yield of all Dow stocks at 5.56%. It is a dubious honor being the “Top Dog” when you think about the huge pending acquisition of Red Hat, a CEO that needs to be fired and a company where the growth strategies and strategic imperatives just cannot offset the decline in its core IT-services. That may end one day, but IBM has been a disappointment for so long that no one at Big Blue can blame the recent market volatility for its woes. Just look at a multiyear chart of IBM as a standalone market bet — you would think there never was a bull market before 2018. IBM shares were down under $114 heading into year’s end, down from a 52-week high of $171.13. IBM was last seen down 26% for the year.

Exxon Mobil Corp. (NYSE: XOM) still has a $300 billion market cap, but its shares were not that great even in a rising oil market. Exxon beat out rival Chevron with a 4.8% yield at the end of 2018. With crude trading around $45 a barrel at the end of 2018, it seems hard to imagine that “black-gold” was at $75 per barrel at the start of October. Investors may feel like they get a huge dividend, but people in about a dozen states paying less than $2 per gallon at the pump may feel like they are the winners over Big Oil shareholders here. With shares above $68 late on the last day of 2018, the stock has a 52-week range of $64.65 to $89.30. That consensus analyst target price of $87.09 seen in recent days feels like it needs to be brought down in 2019 to reflect a more modest oil and gas climate, after its shares were down over 18% in 2018.

Verizon Communications Inc. (NYSE: VZ) is now the top dog for telecom and communications, with AT&T having been booted out of the Dow. With a $236 billion market cap, Verizon sported a 4.35% yield as 2018 came to a close. Its shares were almost at $56.00 heading into the close on Monday, in a 52-week range of $46.09 to $61.58. Verizon may have acquired Yahoo and AOL and branded them under Oath, but its business model is far simpler to understand now than AT&T after the latter has rolled up DirecTV and Time Warner. Verizon is quite close to its consensus target price of $58.70. Verizon’s gain of more than 4% in 2018 sounds muted, but it’s better than the Dow overall.

Chevron Corp. (NYSE: CVX) was a fourth on the list of the Dogs, but it was a distant second to Exxon Mobil, with a $214 billion market cap and a 4.12% dividend yield. With Chevron shares under $109 late on Monday, it compares with a 52-week range of $100.22 to $133.88. Does anyone trust that the prior $141 consensus target price is anywhere close to realistic at this time? Chevron’s performance of −13% in 2018 was better than that of Exxon Mobil.

Three Dow stocks were in a heated race for the finish for the fifth spot among the five Dogs of the Dow:

  • Pfizer Inc. (NYSE: PFE) was the king of the drug and health stocks for yield at the end of 2018. It was valued at $257 billion and came with a 3.35% dividend yield. Pfizer was up better than 18% in 2018 on last look.
  • Coca-Cola Co. (NYSE: KO) had a 3.31% yield and a $208 billion market cap. After having finally made a multiyear chart breakout, the beverage giant’s shares were still above $47.00 heading into year’s end. Coca-Cola was last seen up about 3% for all of 2018.
  • JPMorgan Chase & Co. (NYSE: JPM), the king of U.S. banks, had a 3.30% yield and a $329 billion market cap. Its shares were down over 9% so far in 2018.

Next in line were as follows:

  • Procter & Gamble (NYSE: PG) at 3.15%
  • Cisco Systems, Inc. (NASDAQ: CSCO) at 3.10%
  • Merck & Co. Inc. (NYSE: MRK) at 2.92%

Many investors track the Dogs of the Dow. Some years this strategy works well, others not so much. Sadly, the performance of General Electric Co. (NYSE: GE) may have greatly skewed the results in 2018 before it was booted out of the Dow.

See how the 2019 Dogs of the Dow compared to the 2018 Dogs of the Dow.

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