"Dogs of the Dow" has long been a popular investment strategy, followed by many sly investors. Simply put, it is about buying ten of the most profitable dividend shares at the start of each year and betting that they will outperform the market.
This approach to investing in value outpaced the markets in the past four years in a row and seven in the last ten years. But it didn't pay this year when momentum stocks outperformed any other market segment.
So far in 2019, of the group, only Procter & Gamble Company (NYSE 🙂 is doing better than the, which rose 26% in 2019. The average return for the dogs this year is only 8.6%.
But for those interested in trying the 2020 strategy, below are three best-performing stocks from the DJIA, whose prospects are worth analyzing:
1. Dow Inc.
Dow Inc (NYSE :), a giant in materials sciences, plastics, and silicones, should be an attractive revenue-generating opportunity next year due to the clear focus of the chemical producer to return most of its income to investors in the form of substantial dividends and purchase of own shares. According to the presentation of Midland, MI-based manufacturer to investors, Dow plans to pay 65% ??of its net income to shareholders every year.
The company plans to achieve that goal by spending less on new factories and by taking a more focused approach to its target markets after reducing the number of business units to six out of 15. Plastic and packaging is now the largest Dow company, accounting for around half of sales and profit, with operations in 31 countries.
Dow Inc. Weekly price chart
His share currently pays $ 0.7 dividend per share, with an annual yield of around 5.27%. With the intended payout ratio of 45% of the company's net operating result, that dividend is fairly conservative and has the potential to grow more as the group reduces costs and benefits from its leading market position in the global plastic business.
Having said that, investors should be aware that plastic, a derivative thereof, is a very cyclical enterprise where supply and demand are closely linked to global economic growth and other macro-influences. After an increase of around 7% this year, the shares closed on Friday at $ 53.28.
2. Exxon Mobil
One of America & # 39; s energy "super majors", Exxon Mobil Corp (NYSE 🙂 certainly fits into the "Dogs of the Dow" strategy for 2020 after the stock could not sustain its early rally this year and the market lagged behind.
The company has an impressive scale in everything from drilling to refining to extraction in the American shale region. And while the share is unlikely to generate huge gains for investors, it remains a top choice for energy bulls in the long run. Shares, which have only risen 1% since early 2019, closed Friday's session for $ 69.23.
Exxon Mobil weekly price list
The multinational oil and gas giant is investing billions of dollars to improve its growth, unlike other major producers who are trying to stabilize their shares by cutting back on major spending.
Exxon's CEO, Darren Woods, believes that the oil industry needs a significant injection of new investments to meet the new challenges and has started a $ 230 billion plan to breathe new life into the company, focused on drilling opportunities around the world.
XOM pays a quarterly dividend of $ 0.87 per share, with a return of 5%. But buying the stock means you are guessing that a strong recovery in oil prices will brighten the prospects of major oil companies next year. As the US and China come closer to signing a trade agreement, the chances of that outcome have certainly increased.
3. International company machines
The age-old tech giant International Business Machines (NYSE 🙂 has been floating at a crossroads for years. Big Blue, as it is affectionately called, is struggling because technology and consumer preferences are evolving rapidly, depriving this technology legacy company of its main sources of income.
It peaked in 2011 and free cash flows did the same a year later. Chief Executive Officer Ginni Rometty & # 39; s strategies to refocus IBM's business on the latest technologies, such as the cloud and artificial intelligence, have contributed to a major transformation of the company.
During this period, IBM left some markets, invested in cloud data centers and purchased a number of companies to boost sales, support technology offers, and add data to help train artificial intelligence (AI) algorithms.
Although IBM has so far been slowly gaining a leading market share in new areas of the digital economy such as cloud computing, the recent purchase of $ 34 billion from the company by Red Hat could be a game changer. This acquisition has added a relatively high margin software company to IBM & # 39; s offering, driven in particular by the company's hybrid cloud services to business customers.
The stock is responding slowly to these efforts and this year rose by 18% to $ 134.21 at the end of Friday.
Despite the recent increase, IBM's share remains around 38% lower than its record in 2013, testing the patience of the company's buy-and-hold investors. The average target price of analysts for this share is $ 148.3 for the next 12 months, the lowest is $ 120, the highest is $ 173. The company pays a quarterly dividend of $ 1.62, yielding around 4.8%.
Bottom Line
If you are looking for bargains, "Dogs of the Dow" is definitely a strategy worth considering. The above three shares of the group are our recommended shares for buy-and-hold investors who are interested in income opportunities.
