2023 Dogs of the Dow: All 10 High-Yielding Stocks Analyzed

The Dogs of the Dow strategy consists of buying equal-weighted amounts of the 10 highest-yielding stocks in the Dow Jones Industrial Average (DJIA) benchmark at the start of the year.

The DJIA has existed since 1896 and tracks 30 of America's largest and most well-known companies, including Apple, Walmart, Visa, and Johnson & Johnson.

Filtering this universe of blue chips by highest dividend yield can help identify out-of-favor stocks, known as Dow Dogs, that may be poised to rebound. And investors get paid a healthy dividend while they wait.

The table below contains a downloadable list of 2023 Dogs of the Dow with up-to-date dividend yields and Dividend Safety Scores™. 

Below the table you'll find:

Implementing the Dogs of the Dow strategy requires following three simple steps:

1) At the start of the year, buy the 10 Dow stocks that have the highest dividend yields in the group. Weight each position equally.

Using the 2023 Dogs of the Dow list above and assuming a $10,000 investment for the entire portfolio (approximately $1,000 per stock), that would mean buying the following number of shares:

2) Hold the portfolio for one year. Then, sell the Dow Dogs that have dropped off the top 10 dividend yield list. Replace them with new additions to the list. Rebalance the portfolio to ensure the 10 stocks have equal weights.

3) Repeat the process every year.

Due to the cost of taxes associated with rebalancing, the Dogs of the Dow strategy may be more efficiently carried out in retirement accounts.

That said, investors considering the strategy should consider its mixed performance track record and drawbacks.

The Dogs of the Dow strategy began gaining popularity in 1988 when analyst John Slatter published an article in The Wall Street Journal noting the approach's success.

Slatter found that from 1973 to 1988 the Dogs of the Dow strategy returned 18.4% per year, almost doubling the Dow Jones Industrial Average's 10.9% annualized return.

Studying similar time periods, other researchers found results that matched Slatter's general observation:

However, subsequent research provided a more tempered view.

In a 2000 paper, Mark Hirschey concluded that the Dogs of the Dow strategy provided no abnormal returns between 1961 and 1998 after accounting for trading costs and taxes.

More recent data from S&P Dow Jones Indices shows the Dow Dogs returned 11.6% annualized from 2012 to 2022, slightly trailing the 12.2% return for the Dow Jones Industrial Average and the S&P 500's 12.5% annual gain.

Overall, research has not produced a clear consensus on the merits of the Dow Dogs strategy.

And today, honing in on the highest dividend yields may not be as reliable of a value indicator given the limited number of stocks in the DJIA and the many lower-yielding stocks that have joined the popular benchmark.
 
For example, at the end of 2022 only 17 of the 30 Dow stocks had a dividend yield above 2%. A high dividend yield may not be abnormal for many Dow Dogs.

Holding a stock for just one year carries risk as well. Anything can happen in 12 months. Changes in a stock's valuation multiple are unpredictable and can temporarily overpower the trajectory of a company's underlying fundamentals, which matter more for long-term returns.

Let's take a closer look at each Dow Dog's appeal.

We analyzed every Dow Dog to help investors separate value from potential value traps.

Investors interested in income ideas may also want to review our favorite high dividend stocks, which include two Dogs of the Dow.

Sector: Communications – Wireless and Internet Services
Dividend Yield: 6.6% (as of 12/30/22)
Dividend Safety Score: Safe
Uninterrupted Dividend Streak: 38 years

Verizon's (VZ) dividend yield shot higher in 2022, ending the year at 6.6% to sit well above its 5-year average yield of about 4.5%.

The wireless giant and top-yielding Dow Dog may be an appealing rebound candidate.

Verizon's underperformance reflected poor new subscriber growth compared to AT&T and T-Mobile.

These rivals have improved their network performance in recent years, eroding some of Verizon's advantages that historically helped the service provider charge higher prices and enjoy lower churn.

Further muddying the outlook, the industry's splurge on spectrum and equipment to support 5G wireless has yet to accelerate growth in the saturated U.S. cell phone market.

But Verizon and others now have higher debt loads to work down, a growing priority with interest rates shooting higher and economic uncertainty ahead.

Fortunately, Verizon should remain a cash cow. The company's low churn rates have helped the firm maintain a steady level of customers. And capital intensity peaked in 2022 as Verizon completed spectrum deployments to bring 5G to more customers.

As growth spending moderates from here, recession-resistant Verizon will retain more cash flow to pay down debt and support its well-covered dividend.

Contrarian investors hunting for high yields could do worse than Verizon. Especially if 5G growth opportunities materialize in the coming years as we become an even more "connected" society.

Sector: Materials – Commodity Chemicals

Dividend Yield: 5.6% (as of 12/30/22)
Dividend Safety Score: Borderline Safe

Uninterrupted Dividend Streak: 12 years

Dow (DOW) was founded in 1897 by Herbert Dow, just one year after Charles Dow (no relation to Herbert) created the Dow Jones Industrial Average benchmark.

One of the largest chemical companies in the world, Dow has over 3,500 product families spanning plastics, chemical building blocks, and performance materials used in packaging, pipes, cables, paints, insulation, furniture, and thousands of other goods.

Dow's chemicals help the global economy function. But demand in many of its end markets is cyclical. The company's profits are also sensitive to oil and gas prices and supply-demand balances across different products.

These traits keep Dow's stock trading at a high dividend yield around 5%, despite the company's solid cash flow and BBB credit rating. And during economic shocks, such as the 2020 pandemic, Dow's dividend yield can spike above 10%.

With this perspective, Dow's current dividend yield is not that impressive even though it ranks the company second on the 2023 Dogs of the Dow list. Opportunistic investors may prefer to buy Dow after sentiment on the economy has soured more.

Sector: Information Technology – Semiconductors

Dividend Yield: 5.5% (as of 12/30/22)
Dividend Safety Score: Borderline Safe

Uninterrupted Dividend Streak: 31 years

Intel's (INTC) current dividend yield sits over twice as high as its 5-year average. This reflects the stress the chip maker faces after losing its lead in process technology to foundry rival TSMC for the first time in the company's history.

Following manufacturing delays in recent years, Intel's processors have fallen a step behind those designed by rivals such as AMD and Nvidia, which outsource their manufacturing to TSMC's leading-edge fabs in order to make smaller but more efficient chips.

Should Intel fail to catch up, the company's dominant grip on processors and chipsets used in PCs and servers will loosen further.

Getting back on track won't come cheap. Intel's free cash flow will evaporate for several years while management equips factories with advanced manufacturing technologies and expands production capabilities.

Intel's large dividend, coupled with historic capital expenditures, will cause the company to operate at a cash flow deficit for the first time in at least 20 years.

Management has remained committed to sustaining the dividend with hopes that Intel will restore healthy cash flow coverage and double-digit sales growth by 2026. But this commitment could be tested.

Until then, the stock remains a "show me" story with investors. Shares of Intel could double if management's turnaround plan achieves success.

But if not, Intel may have proven to be cheap for a reason.

Sector: Consumer Staples – Drug Retail

Dividend Yield: 5.1% (as of 12/30/22)
Dividend Safety Score: Unsafe

Uninterrupted Dividend Streak: 91 years

Walgreens Boots Alliance (WBA), a dividend aristocrat, has seen its dividend yield more than double over the past five years as investors have soured on the drugstore chain's growth prospects.

Walgreens generates most of its profits from retail sales of pharmaceuticals and general merchandise in the U.S. This usually stable business has come under pressure in recent years.

Amazon and others are taking share from brick-and-mortar retailers as more consumers shop online, and drug prices are under pressure as governments and private insurers seek to control rising healthcare costs. Online pharmacy rivals pose another long-term threat.

Walgreens has responded with a capital-intensive growth strategy focused on opening doctors' offices in many of its stores, expanding its addressable market into higher-margin areas in healthcare services.

If all goes well, management sees potential for Walgreens' annual EPS growth to accelerate from 4% the next few years to as high as 13% beyond 2025, with its new health services driving at least half of the growth as they scale.

Despite management's rosy long-term growth projections, investors appear unenthused by the firm's turnaround plan.

It remains to be seen if Walgreens can alter consumer perceptions of a drugstore's purposes, and the company will have to contend with the many insurers that continue expanding their reach into care delivery. 

Fortunately, Walgreens' core business seems unlikely to fade quickly thanks to its convenient store locations, patients' ingrained habits, and the pharmacy industry's complex web of doctors, insurers, and regulations.

Sector: Industrials – Industrial Conglomerates

Dividend Yield: 5.0% (as of 12/30/22)
Dividend Safety Score: Unsafe

Uninterrupted Dividend Streak: 64 years

3M (MMM) faces potentially tens of billions of dollars of legal liabilities tied to the dividend king's legacy PFAS chemicals and military earplugs, explaining the stock's high dividend yield near 5%.

These issues may take years to resolve but could materially pressure 3M's balance sheet and free cash flow coverage of the dividend, especially after the conglomerate spins off its healthcare business at the end of 2023.

3M has also struggled to increase its sales above GDP growth rates. After separating its faster-growing healthcare business later this year, that pattern doesn't appear likely to change.

3M's cheap valuation by historical standards bakes in some degree of bad litigation outcomes and weakened growth prospects. And the firm's 60,000 products across many different end markets make 3M a durable cash cow.

However, we would prefer to own a business with a stronger financial outlook and better dividend growth prospects.

Sector: Information Technology – IT Consulting and Other Services

Dividend Yield: 4.7% (as of 12/30/22)
Dividend Safety Score: Safe

Uninterrupted Dividend Streak: 28 years

International Business Machines (IBM) incorporated in 1911 but had its big breakthrough in the 1950s with the invention of the mainframe computer.

These fridge-sized machines revolutionized mission-critical jobs, such as managing the databases of an insurance company or credit card transactions of a bank.

But they also caused IBM to miss the personal computer revolution, which changed the way customers used technology and caused demand for mainframes to slow.

This set IBM on a long path of following rather than leading the latest technological trends, keeping the firm stuck in cycles of cost-cutting plans and workforce reductions. 

More recently, the rise of cloud computing has pressured IBM. Vendors such as Amazon provide computing infrastructure like a utility so companies don't need to maintain their own IT infrastructure. This means less hardware business for IBM and endangers its complementary software and support services over time.

To adapt, IBM has staked its future on the so-called hybrid cloud. The firm believes that many companies will keep some of their computing on their own servers while also migrating other programs to multiple cloud service providers such as AWS (Amazon) and Azure (Microsoft).
 
Red Hat, which IBM acquired for $34 billion in 2019, makes that work easier for software developers and sits at the heart of management's growth strategy. IBM in 2021 also spun off its managed infrastructure services business, which accounted for 25% of sales and faced secular decline due to the rise of cloud computing.

The future looks brighter for Big Blue. But given the firm's poor track record and the fiercely competitive nature of cloud infrastructure and services, it remains to be seen if IBM can return its business to sustainable growth.

Sector: Healthcare – Biotechnology

Dividend Yield: 3.2% (as of 12/30/22)
Dividend Safety Score: Safe

Uninterrupted Dividend Streak: 11 years

Venture capitalists formed Amgen (AMGN) in 1980. The firm has since grown to become one of the world's leading biotechnology companies with more than 20 marketed medicines.
 
Unlike larger rivals Merck and Pfizer, which primarily manufacture small molecule drugs created through chemical reactions in a lab, the majority of Amgen's products are made using living cells and organisms such as bacteria, plants, and tissue.

Known as biologics, these drugs are harder to produce. Coupled with Amgen's use of litigation to extend patent protections and reduce price competition, the biotech pioneer has protected its established medicines for longer than most.
 
These qualities, plus the firm's diverse pipeline of medicines and strong balance sheet, have made Amgen a cash cow and enabled the firm to pay higher dividends each year since it began making payouts in 2011.

While pure-play drug makers must contend with patent cliffs, blockbuster flops, and industry pricing concerns, Amgen's strong balance sheet, technical know-how, and product and treatment diversity position it well in this otherwise defensive sector.

Amgen's 3.2% dividend yield sits slightly above its 5-year average. The stock may not be a bargain, but it should continue to boast a safe and growing payout for income investors.

Sector: Information Technology – Communications Equipment

Dividend Yield: 3.2% (as of 12/30/22)
Dividend Safety Score: Very Safe

Uninterrupted Dividend Streak: 11 years

Cisco (CSCO) has grown to become one of the most important technology companies in the world since its founding at Stanford University in 1984.

The firm's core products – switches and routers – connect computing devices to networks and computer networks with each other. These infrastructure platforms help direct the internet's traffic and move data to the proper devices.

The rest of the firm's revenue is spread across several faster-growing divisions, including applications, security, and services, which consist of technical support, subscriptions, and software related to Cisco's various segments.

While qualifying as a Dow Dog, Cisco's dividend yield is about in line with its 5-year average. The stock's valuation usually becomes more attractive when investors grow concerned about cyclical IT spending, which can push Cisco's dividend yield closer to 4%.

Cisco's large size makes the company move slowly. But the firm seems likely to remain relevant for years to come thanks to its breadth of network equipment and services, large installed base, brand recognition, and financial firepower, including an AA- credit rating.

Sector: Energy – Integrated Oil and Gas

Dividend Yield: 3.2% (as of 12/30/22)
Dividend Safety Score: Very Safe

Uninterrupted Dividend Streak: 110 years

Chevron (CVX) is a good example why the Dogs of the Dow list can be misleading. Chevron's stock returned over 50% in 2022 as high oil prices persisted while the S&P 500 lost nearly 20%.

Yet the oil major still ranks among the top 10 highest-yield stocks in the Dow Jones Industrial Average. This is because so many Dow stocks are growth-oriented companies with lower dividend yields.

Unless you believe oil prices will remain stubbornly high as inflation persists, now may not be the best time to load up on Chevron.

Valuation debates aside, Chevron is a great business that has paid uninterrupted dividends since 1912 despite operating in a cyclical industry.

The oil giant's profits come from upstream activities like exploring for and producing oil, gas, and liquefied natural gas, as well as downstream operations, including refineries that use crude oil to make petroleum products such as gasoline and petrochemicals as well as a network of gas stations.

This vertical integration helps reduce earnings volatility and minimize costs. Management also runs the business with a conservative balance sheet to ensure Chevron's capital allocation priorities remain supported in good times and bad.

Sector: Financials – Diversified Banks

Dividend Yield: 3.0% (as of 12/30/22)
Dividend Safety Score: Borderline Safe

Uninterrupted Dividend Streak: 13 years

JPMorgan Chase (JPM), the largest bank in America, traces its roots back to 1799. By almost any measure, the bank is well capitalized and a leader in key segments such as investment banking, credit cards, and wealth management.

Serving as a one-stop shop for many customers' financial needs, JPMorgan enjoys switching costs and the ability to sell additional products to existing clients to drive growth. A large base of low-cost deposits further aids the bank's profitability.

While JPM's dividend yield is unremarkable compared to the stock's trading history, the company represents one of the highest-quality banks in America for investors seeking exposure to this cyclical industry.

Regulators represent the main knock on JPMorgan's dividend profile. Governments control the biggest banks' dividend policies when the tide goes out to ensure they retain enough capital to support customers and the global economy.

Regardless of whether banks meet existing capital requirements demanded by regulators, there is always risk that a severe recession results in dividend restrictions out of an abundance of caution.

We are not aware of an ETF that exactly replicates the Dogs of the Dow strategy. However, the ALPS Sector Dividend Dogs ETF (SDOG) takes a similar approach.

This fund takes the five highest-yielding stocks from each of the S&P 500's 10 sectors, resulting in 50 equal-weighted holdings. Stocks are selected each December and rebalanced quarterly.

With over $1 billion in net assets and around a 10% annualized return since inception in 2012, SDOG appears to be an ETF with staying power for investors who want a hands-off approach to applying the Dogs of the Dow theory.

Similar ETFs are available for emerging markets, international developed markets, and REITs.

In theory, the Dogs of the Dow strategy sounds appealing – buying beaten-down stocks of quality, time-tested businesses.

But in reality, the limited number of holdings in the Dow Jones Industrial Average benchmark makes the top 10 yield list less targeted.

Instead, our preference is to build a more diversified dividend portfolio that pulls from a broader universe of high-quality stocks.

Comparing a stock's dividend yield to its normal trading range can also help identified undervalued businesses, an approach we follow with our Timeliness valuation metric (and the yield charts shown above).

By the way, many of the people interested in Dow Dogs are retirees looking to generate reliable income from dividend-paying stocks.

If that sounds like you, you might like to try our online product, which lets you track your portfolio’s income, dividend safety, and more.

You can learn more about our suite of portfolio tools and research for dividend investors by clicking here.