The year 2019 was exceptionally good for the Dow, with the blue-chip index surging 20% or more. The index had registered several record highs, and is now on track to mark its best year since 2013. In fact, it steered past the coveted 28,000 mark for the first time in its 120-year history on Nov 15.
The index gained traction from easy monetary policies as well as mostly positive economic data, defying fears of a recession that many investors had at the end of 2018. Needless to say, progress toward a January trade agreement between the United States and China, and the USMCA trade deal to replace NAFTA also helped the Dow walk away with some solid gains this year.
With the Dow doing so good, it surely has been a tough time for conservative investors to keep up. Particularly, those who applied the Dogs of the Dow strategy haven’t had an encouraging year. After all, collectively the Dogs of the Dow have been able to gain around 14%, less than what the overall blue-chip index has done so far.
But the Dogs of the Dow strategy didn’t produce returns as per expectations? This is simply because the strategy generally tends to focus on selecting the top 10 Dow components on the basis of the highest dividend yield at the beginning of the year. And we all know that dividend players tend to perform comparatively well when there is gyration in the market, which wasn’t the case in 2019.
Most importantly, the Dogs of the Dow strategy left out the strongest tech players this year like Apple Inc. (AAPL) and Microsoft Corporation (MSFT), leading to underperformance.
This year, the iPhone maker benefited from momentum in its non-iPhone businesses, particularly Services and Wearables, strong adoption of Apple Pay and growing Apple Music subscriber base. Needless to say, the company has done so good this year that its goal of $51 billion in services revenues is now very much within reach. Apple’s service revenues had already grown to $46.29 billion, as of the third quarter.
When it comes to Microsoft, its new subscription model, Azure, and promising new products generated sizeable cash flows this year. To top it, Microsoft’s gaming segment, including Xbox Live, Game Pass subscriptions and Mixer also helped the trillion-dollar plus company gain traction. Notably, acquisitions like PlayFab and GitHub helped Microsoft expand its total addressable market.
Shares of Apple and Microsoft have jumped 84.9% and 55.2%, respectively, over the past year. Have a look –
But does this mean that the Dogs of the Dow are dead as we head toward 2020? The answer is certainly not! This is because market pundits believe that that there are quite a few reasons for the U.S. stock market to not continue the double-digit annual returns next year. This is primarily because the market currently seems to be overvalued, trading at around 19 times earnings, and thus doesn’t have much room to run.
Also, the United States for most part of next year will face political uncertainty, eventually leading to gyrations in the stock market. But, it’s not just political risks that should bother investors. Rapid increase in government borrowing along with threat of more taxes and stringent regulations may jeopardize the U.S. stock market performance.
But Dogs of the Dow have large customer base, sustainable business model, and a long track of profitability and strong liquidity, which allows them to offer sizable yields on a regular basis, regardless of market direction. Thus, we present to you five top Dogs of the Dow that should benefit as we head into 2020.
Exxon Mobil Corporation XOM explores for and produces crude oil and natural gas. It operates through Upstream, Downstream, and Chemical segments. Exxon Mobil has a dividend yield of 4.98%. It has a five-year average dividend yield of 3.78%.
The company, currently, has a Zacks Rank #3 (Hold). Its expected earnings growth rate for the next quarter and year is 36.4% and 31.4%, respectively.
Verizon Communications Inc. VZ offers communications, information, and entertainment products and services to consumers, businesses, and governmental agencies. Verizon has a dividend yield of 4%. It has a five-year average dividend yield of 4.54%.
The company, currently, has a Zacks Rank #3. Its expected earnings growth rate for both the next quarter and year is a 2.5%.
Chevron Corporation CVX engages in integrated energy, chemicals and petroleum operations. The company operates in two segments, Upstream and Downstream. Chevron has a dividend yield of 3.96%. It has a five-year average dividend yield of 3.78%.
The company, currently, has a Zacks Rank #3. Its expected earnings growth rate for the next quarter is 15.8%.
Pfizer Inc. PFE develops, manufactures and sells healthcare products. Pfizer has a dividend yield of 3.66%. It has a five-year average dividend yield of 3.54%.
The company, currently, has a Zacks Rank #1 (Strong Buy). Its expected earnings growth rate for the next five years is 3.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
3M Company MMM develops, manufactures and markets various products. 3M Company has a dividend yield of 3.25%. It has a five-year average dividend yield of 2.6%.
The company, currently, has a Zacks Rank #3. Its expected earnings growth rate for the next year is 6.5%.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold.
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Pfizer Inc. (PFE): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.