Say Hello to 2022’s Dogs of the Dow: 10 Dividend Stocks to Watch
Passive-income seekers see the start of a given year as an opportunity to participate in the “Dogs of the Dow” strategy. What’s that investment method? Well, investors buy the 10 highest-yielding stocks from the Dow Jones Index — say at the start of 2022 — and hold them for 12 months. Then, in 2023, they invest in the next set of 10 highest-yielding stocks and rebalance their portfolios.
While this may look like a dividend strategy, its roots are actually based on value investing. Put another way, the high dividend yield could be an indication that a company’s share price has bottomed out. Stocks with high dividends relative to their stock price are considered near the bottom of their business cycle, representing bargains for value investors.
Still, recent research reveals “mixed findings” on the validity of this process. The Dogs have indeed trailed the index in each of the past four years, primarily reflecting investor appetite for high-growth stocks during that period. Yet, as value stocks begin to regain their momentum, 2022 may finally be the year for the Dogs of the Dow.
So, with that information, here are 10 dividend stocks to buy if you want to follow this strategy for the year:
- ALPS Sector Dividend Dogs ETF (NYSEARCA:SDOG)
- Amgen (NASDAQ:AMGN)
- Chevron (NYSE:CVX)
- Coca-Cola (NYSE:KO)
- Dow (NYSE:DOW)
- Intel (NASDAQ:INTC)
- Invesco Dow Jones Industrial Average Dividend ETF (NYSEARCA:DJD)
- Merck (NYSE:MRK)
- Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD)
- Walgreens Boots Alliance (NASDAQ:WBA)
Dividend Stocks to Buy: ALPS Sector Dividend Dogs ETF (SDOG)
52-week range: $44.81 – $56.30
Dividend yield: 3.89%
Expense ratio: 0.40% per year
Our first choice on this list of dividend stocks is actually not a stock. Instead, it’s an exchange-traded fund (ETF). Although there are no specific ETFs that invest only in the 10 highest-yielding DJIA names at the start of the year, there are several funds that focus on similar strategies.
For example, SDOG utilizes the “Dogs of the Dow Theory” on a sector-by-sector basis. At the end of November, the fund identifies the five top-yielding stocks in 10 of the 11 S&P 500 sectors, excluding real-estate names.
As a result, the ETF offers instant diversification to a portfolio, as each sector has roughly a 10% slice. These sectors are: Consumer Staples, Energy, Healthcare, Materials, Communication Services, Utilities, Information Technology (IT), Industrials and Financials.
SDOG has 50 holdings and tracks the S-Network Sector Dividend Dogs Index. This equally weighted fund was launched in June 2012. Its assets under management stand at $1.2 billion. At present, leading names on the roster include Exxon Mobil (NYSE:XOM), Philip Morris International (NYSE:PM), Newmont (NYSE:NEM), Bristol-Myers Squibb (NYSE:BMY) and Valero Energy (NYSE:VLO).
These 50 holdings currently trade at a discount relative to their peers. Therefore, the ETF could particularly appeal to value investors during a period when the U.S. Federal Reserve is getting ready to raise interest rates.
Over the past 12 months, SDOG has returned 16%. The fund also recently hit a record high.
Amgen (AMGN)
52-week range: $198.64 – $276.69
Dividend yield: 3.49%
Next up on this list of dividend stocks, biotech giant Amgen focuses on renal disease and cancer supportive therapies. Its pipeline has a variety of drugs in both Phase 2 and Phase 3 clinical trials.
Growth drivers for this company include cancer drugs Lumakras and Blincyto. In 2023, management is also on track to launch Amgevita, a promising alternative to Humira, which is one of the top-selling drugs worldwide.
This company issued third-quarter metrics in early November. For the period, revenue increased 4% year-over-year (YOY) to $6.7 billion. Net income stood at $2.66 billion, or $4.67 per share. That was up 8% YOY from $2.47 billion in the prior-year period.
AMGN stock currently hovers at slightly below $230, up almost 13% over the past year. Shares are trading at just 11.7 times forward earnings and 5 times trailing sales. The 12-month median price forecast for the biotech stock stands at $235. Potential investors could regard a decline toward $220 as a better entry point here.
Dividend Stocks: Chevron (CVX)
52-week range: $84.57 – $137
Dividend yield: 4.04%
Our next pick of the dividend stocks, Chevron, is the second-largest oil company in the United States. The company boasts a diversified oil business ranging from exploration and drilling to midstream, all the way to downstream operations. Therefore, Chevron provides investors with a convenient way to benefit from rising oil and gas prices.
This energy giant released Q3 results back in late October. For the period, revenue soared 83% YOY to $44.7 billion. Further, adjusted earnings came in at $5.7 billion, or $2.96 per diluted share. That was up from just $340 million in the prior-year quarter. Lastly, the company generated a record free cash flow of $6.7 billion.
Investors may also want to note that this oil major paid dividends of $2.6 billion and reduced debt by $5.6 billion during the quarter. Chevron currently offers a lucrative 4% dividend yield.
CVX stock is trading right around $127 currently, up about 52% over the past 12 months. Shares are trading at 15.5 times forward earnings and 1.9 times trailing sales. The 12-month median price forecast for Chevron stock is $140.
Coca-Cola (KO)
52-week range: $48.11 – $61.45
Dividend yield: 2.82%
Like Chevron, the world’s largest nonalcoholic beverage group — Coca-Cola — also released Q3 financials back in late October. For this pick of the dividend stocks, net revenue increased 16% YOY to reach $10 billion. Net income of $2.47 billion translated into 57 cents per diluted share as well. A year ago, the metric had been $1.74 billion. Put differently, consumer mobility and spending levels are returning to pre-pandemic levels.
In addition to strong brand recognition and robust profitability, Coca-Cola is also a Dividend King, generating a 2.82% dividend yield. KO stock hovers around the $60 territory right now, up 22% in the past 52 weeks. Shares are trading at 26 times forward earnings and 6.8 times trailing sales.
The 12-month median price forecast for Coca-Cola stock stands at $64. Potential investors could wait for a pullback to hit the buy button on shares.
Dividend Stocks to Buy: Dow (DOW)
52-week range: $51.33 – $71.38
Dividend yield: 4.89%
DOW stock is the next entry on this list of dividend stocks. Chemicals giant Dow is known for its portfolio of plastics, coatings and industrial intermediates. Therefore, Wall Street naturally expects it to benefit from the $1 trillion infrastructure bill.
Like other names on this list, Dow issued Q3 2021 results back in late October. For the quarter, revenue increased 53% YOY to $14.8 billion. What’s more, net income came in at $1.7 billion, or $2.23 per diluted share. Finally, free cash flow stood at $2.3 billion.
This pick of the dividend stocks currently trades around the $60 mark, up 8% for the past one year. Shares look like a bargain, trading at just 6.48 times forward earnings and 0.83 times trailing sales. The 12-month median price forecast for Dow stock is $65.
Intel (INTC)
52-week range: $47.85 – $68.49
Dividend yield: 2.69%
Intel is the largest semiconductor chip manufacturer worldwide. What’s more, the company has plans to invest $20 billion in two semiconductor foundries in Arizona. The chipmaker also recently announced plans to take its Mobileye autonomous driving (AD) business public.
This chipmaker issued Q3 results in late October. For the period, revenue increased 5% YOY to $19.2 billion. Net income stood at $7 billion as well, or $1.71 per diluted share. That was up 54% YOY from $4.5 billion a year ago. Cash and equivalents ended the quarter at $7.87 billion.
Investors were pleased with record revenues in the Internet of Things (IoT), Data Center and Mobileye segments. However, the anticipated slowdown in PC sales could mean a threat to Intel’s turnaround.
INTC stock is currently trading around the $48 mark, down 13% over the past one year. Shares have a moderate valuation at just 13.9 times forward earnings and 2.7 times trailing sales. The 12-month median price forecast for INTC stock stands at $55. Potential investors could regard current levels as a good entry point.
Dividend Stocks to Buy: Invesco Dow Jones Industrial Average Dividend ETF (DJD)
52-week range: $38.09 – $46.93
Dividend yield: 3.14%
Expense ratio: 0.07% per year
Our next choice on this list of dividend stocks is DJD. The Invesco Dow Jones Industrial Average Dividend ETF gives access to dividend-paying companies in the DJIA via their yields over the previous 12 months. Assets under management stand at roughly $181 million.
DJD was launched back in December 2015. According to MarketWatch, Technology leads the fund with 16.3% followed by Healthcare (16%), Consumer Services (15%) Financials (11.4%) and Oil & Gas (9.8%), among others.
The top 10 shares account for 59% of the fund. Chevron, Verizon (NYSE:VZ), IBM (NYSE:IBM), Dow, Walgreens Boots Alliance, Merck, Amgen and Coca-Cola currently lead the names in the ETF.
Over the past one year, DJD is up by 14.7%. However, the fund has declined almost 1% year-to-date (YTD). The recent decline in broader indices means a good entry to funds like DJD.
Merck (MRK)
52-week range: $68.44 – $91.40
Dividend yield: 3.49%
Next up on this list of dividend stocks, leading pharma name Merck offers a range of prescription medicines, vaccines and biologic therapies. Management recently announced the acquisition of Acceleron Pharmaceuticals for $11.5 billion. As a result, Wall Street is keeping a close eye on Sotatercept, a promising candidate for the treatment of pulmonary arterial hypertension (PAH).
This drugmaker released Q3 results in late October. For the period, revenue increased by 20% YOY to $13.2 billion. Net income came in at $4.57 billion as well, or $1.80 per diluted share. That’s up from $2.32 billion in the prior-year quarter.
Specifically, revenue derived from the cancer drug Keytruda increased 22% YOY to $4.5 billion in the third quarter. In fact, the cancer drug could become one of the best-selling drugs worldwide.
MRK stock currently hovers around $81, up 6% over the past year. Shares look like a bargain, trading at just 13.7 times forward earnings and 3.8 times trailing sales. The 12-month median price forecast for Merck is $94.
Dividend Stocks to Buy: Schwab U.S. Dividend Equity ETF (SCHD)
52-week range: $63.36 – $82.48
Dividend yield: 3.49%
Expense ratio: 0.06% per year
The Schwab US Dividend Equity ETF is another fund on this list of dividend stocks. If you’re looking for robust shares with sustainable dividends, this fund may be for you. It tracks the returns of the Dow Jones U.S. Dividend 100 Index.
SCHD — which began trading in October 2011 — has 103 holdings. In terms of sub-sectors, Financials lead the fund with 21.5%, followed by Information Technology (21.4%), Consumer Staples (14.3%), Industrials (13.5%) and Healthcare (12.8%).
Merck, Coca-Cola, Amgen, Verizon Communications, PepsiCo (NASDAQ:PEP), Pfizer (NYSE:PFE) and Cisco (NASDAQ:CSCO) lead the names on the roster. The top 10 holdings account for around 41% of net assets of $31.3 billion.
SCHD hit an all-time high recently. Despite declining 5% YTD, the fund has returned about 17% over the past 12 months. Given the recent decline in price, it deserves further research from investors.
Walgreens Boots Alliance (WBA)
52-week range: $43.62 – $57.05
Dividend yield: 3.84%
Walgreens, the leading retail pharmacy chain, is the last entry on this list of dividend stocks. Walgreens has over 9,000 stores stateside. Management has recently been launching primary care services as well.
This pharmacy group announced Q1 2022 financials on Jan. 6. For the period, revenue increased 8% YOY to $33.9 billion. Net earnings stood at $3.6 billion as well, or $4.13 per diluted share. That’s compared to a net loss of $391 million in the year-ago quarter. Finally, free cash flow was $645 million.
Wall Street was pleased that the pharmacy chain administered over 15 million vaccine doses during Q1, which has also led to higher foot traffic in its stores. As a result, comparable U.S. retail sales grew 10.6% YOY. Additionally, digital sales surged 88% YOY while same-day pick-up orders grew in number and popularity.
WBA stock hovers around $50 currently, up 1.3% over the past year. The healthcare stock offers solid value, trading at just 9.84 times forward earnings and 0.32 times trailing sales. The 12-month median price forecast for WBA stock is $53.
On the date of publication, Tezcan Gecgil did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
