The Dogs of the Dow strategy is a contrarian, dividend-focused approach to blue chip investing, whereby an investor purchases annually the 10 Dow Jones stocks with the highest dividend yield. The idea is that management teams set the dividend at an appropriate level, and a higher yield is a signal that the shares are undervalued. This week’s Blue Harbinger Weekly reviews the recent performance of the individual Dogs of the Dow, as well as two specific Dogs that are particularly attractive right now. We also share the weekly performance update table for all of our current holdings (and contenders) along with a few comments on performance and opportunities.
The above table shows the recent performance of the Dow Jones stocks with the highest dividend yields (the complete list of 30 Dow Jones stocks is below), and you’ll notice a lot of “red” (signifying relatively poor performance) in the year to date (and 1-year) performance table. Generally speaking, this is to be expected considering as prices fall, yields mathematically go up. And if you are a contrarian income-focused blue-chip investor, this is a quick way to identify attractive investment opportunities. We’d never blindly invest in a stock just because it’s a Dog of the Dow, but it is a good way to identify candidates for further review (and we will review Johnson & Johnson and Pfizer in particular, in more detail, below).
Johnson & Johnson (JNJ): JNJ is one of the worst performing and biggest dividend Dow Jones stocks over the last year, and it currently presents an attractive investment opportunity, in our view (we currently already own some shares). In particular, JNJ is a very healthy, attractively-diversified, blue-chip company, that has sold off for all the wrong reasons (mainly fear). We wrote in more detail about timely, income-generating, JNJ options trade, HERE.
Pfizer (PFE): Pfizer is another big-dividend, healthcare sector, Dow of the Dow, that we believe is particualry attractive right now. Not only has it sold off for all the wrong reasons (mainly fear), but this attractively-diversified pharmaceuticals company is a Dog of the Dow trading at an attractive price and offering an attractive dividend yield. You can read our recent full report on Pfizer, HERE.
Current Holdings:
Here is a look at the recent performance of all our of current holding as of mid-day today.
You can access a downloadable Excel file of these holdings, along with our watchlist (The Contenders), HERE.
A few things that standout about performance over the last week (5-days) is JNJ’s poor performance—which actually creates an attractive buying opportunity for income-focused investors, as we have described above. ABB is another interesting one (it was up nearly 6% last week) and we wrote in detail about this one right before the gain (we continue to own ABB). Also, Zillow Group (ZG) was up over 9% last week (it’s due for more big gains in the quarters ahead, considering the vast negative market sentiment about the strategy has caused the shares to sell off way to far this year, in our view). And other attractive “income via growth” stocks that have sold off (and are trading way too cheaply in our view—they won’t be for long) include ServiceNow (NOW), Shopfiy (SHOP) and Netflix (NFLX).
Conclusion:
As disciplined, long-term, income-focused investors, one of the best times to purchase shares is often after a pullback or sell off. The reason being, is because often times (not always) the market tends to overreact (out of fear). We know that patience and discipline is an advantage for us as long-term investors (our investment portfolios continue to put up very strong returns and exceptional high income). The Dogs of the Dow strategy, can be a good place to look for potential investment opportunities (such as JNJ and PFE, as described earlier), although we’d never just blindly invest in a Dog of the Dow stock without first doing our own analysis. Goal-focused, long-term, prudently diversified, income investing has proven to be a winning strategy over and over again throughout history.