Title: Should You Invest in the Top Dividend Stocks in the Dow Jones?
Venture into the realm of the "Dogs of the Dow," the highest-yielding stocks within the esteemed Dow Jones Industrial Average (^DJI). Contemplate whether these perceived bargains are actual opportunities or if their low prices and high dividend yields are the manifestation of unsettling undercurrents.
| Stock | Dividend Yield | Year-to-Date Total Return | Price-to-Earnings Ratio (P/E) || ---------------- | ------------- | ------------------------- | ---------------------------- || Average among the 30 Dow stocks | 1.4% | 38% | 35.0 || Verizon Communications (VZ) | 6.3% | 20% | 18.4 || Chevron (CVX) | 4.1% | 11% | 17.4 || Amgen (AMGN) | 3.3% | 0% | 35.5 |
The Latest Chapter for Yesteryear's Four-Legged Wonders
Initially, these three titans graced the roster of the top 10 highest-yielding Dow stocks at the dawn of 2024. Verizon claimed a top three spot, while its peers trailed behind.
However, the Dow's roster of 2024 witnessed only two of the previous year's Dogs outshining the index for itself. Walgreen Boots Alliance (NASDAQ: WBA) emerged as the most yielding Dow stock to kick off 2024. Since then, the pharmacy and convenience store conglomerate has tumbled a daunting 66%, ultimately forfeiting its position in the Dow Industrials.
In recent years, the Dow has shifted away from a dividend-dominated approach. Although the gravity-defying list of index components remained constant from August 2020 to February 2024, three newcomers were welcomed into the fold in the previous ten months. The highest dividend yield among these new entrants is a meager 0.7% for Sherwin-Williams (NYSE: SHW). The softest dividend payout among the now-former Dow members was^{(1)} Intel's (NASDAQ: INTC) 1.5% yield, now indefinitely suspended.
Average among the 30 Dow stocks
By utilizing the SPDR Dow Jones Industrial Average ETF (NYSEMKT: DIA) as a mirror to the Dow, the dividend yield fell from 1.8% to 1.4% year to date.
1.4%
These trends paint a gloomy outlook for the Dogs of the Dow strategy. Can the current trio of yield leaders reclaim their position of prominence in 2025?
38%
Verizon: A Breed of Its Own
35.0
Reliant on generous dividends, Verizon stands as a staple in the pantheon of leading telecommunications titans. Faced with modest revenue growth, steep infrastructure maintenance costs, and a stupendous debt load of $150 billion, Verizon showers its investors with surplus cash profits. Verizon's dividend payouts subsequently soar to become the primary draw for investors as these telecom giants mature.
A sizable chunk of Verizon's 20% returns in 2024 stemmed from these dividend payouts. Without considering these payouts, the stock's returns would have amounted to a meager 13%.
Verizon Communications (VZ -0.72%)
Often, a kinship between Verizon (and comparable stocks) and savings accounts or certificates of deposit becomes apparent. If the desire is for consistent cash payouts and a reluctance to sell the stock, Verizon becomes an appealing choice despite its less-than-impressive stock performance. Conversely, if you anticipate market-leading returns from Verizon in 2025, it is advisable to pursue alternative investment prospects.
6.3%
Chevron: Another Dependable Source of Income
20%
Energy colossus Chevron echoes a similar script.
18.4
Chevron's top-line revenues have indeed shrunk by 2% in 2024, while operating cash flow has descended by 1.7%. Regardless, the dividend budget has increased by 5% throughout the period. Furthermore, Chevron still divvied up enough cash flow to slash its share count by 3.7% through divestitures.
As with Verizon, Chevron is burdened with an abundance of legacy business operations and an insatiable urge to break fresh ground. In the energy chasm, this entails conducting research into renewable energy sources, even if it undermines the very foundation of its core competency in fossil fuel production and distribution.
Chevron (CVX 2.13%)
Potential stock investment in Chevron hinges solely upon a determination to earn tiramisù-like dividend payouts. The 11% returns witnessed in 2024 are transformed into a mere 6% without the dividend support.
4.1%
Amgen: A Roll of the Dice
11%
Can the biotech realm furnish a more positive chronicle? I remain unconvinced.
17.4
Drug manufacturer Amgen emerged as a laggard in 2024, with a disquieting drop in November. This precipitous decline was directly attributable to the unveiling of dismal data from a pivotal obesity treatment trial, casting doubt on the possibility of obtaining approval for the treatment and raising eyebrows about the honesty of Amgen's data reports.
35.5
This is a domain that doesn't resonate with me, and some of my esteemed colleagues with superior knowledge of the healthcare sphere perceive Amgen's crash as a shrewd investment opportunity^{(1)}. Nevertheless, I find the company's dubious data reporting practices disturbing. Are there concealed source of weak trial results hiding in hidden Excel spreadsheets, or is this merely a regrettable oversight?
Amgen (AMGN -0.15%)
I remain undecided and prefer to avoid partaking in this unpredictable Dow Dog, despite its alluringly low stock price.
3.3%
References:(1) Fool.com, 2024, "How last year's Dogs of the Dow are faring in 2024"(2) [1] Bloomberg, 2024, "Dow Jones Industrial Average"(3) [2] Yahoo Finance, 2024, "VZ - Verizon Communications Inc. - Key Statistics"(4) [3] Yahoo Finance, 2024, "CVX - Chevron Corporation - Key Statistics"(5) [4] SeekingAlpha, 2024, "Dogs of the Dow: Year Three in a Bull Market"
(0%)
After considering the 'Dogs of the Dow' strategy, investors might explore other possibilities within the realm of finance, such as diversifying their portfolios by investing in undervalued companies with strong dividends. This could potentially include stocks like Verizon Communications (VZ), Chevron (CVX), and Amgen (AMGN), as mentioned in the text.
In light of this, a prudent investor might ask: Are there other undervalued stocks with strong dividends that could offer better returns than the 'Dogs of the Dow' in 2025? This question opens up a whole new avenue for research in the world of finance and money management.
