WASHINGTON – I promised readers of this column that I’d return after January 1 with our final 2020 Dogs of the Dow. And I actually drafted most of this piece on New Year’s Day, intending to post it Thursday evening or Friday morning at the latest. But surprise events on the other side of the world and Wall Street’s not unexpected bearish reaction to them occupied some serious time Thursday evening and this Friday morning, so I’m running a bit late. These one-day reversals of fortune on Wall Street seem unavoidable these days when headlines and emotions rule the market. But the Iraq Attack and its aftermath were real investment game changers, at least in the short term.
We’ll deal with geopolitical issues in another column. But right now, we need to announce those final 2020 Dogs of the Dow. Then each of us needs to figure out what, if anything, we should do to get in this annual game. Assuming we think it’s worth the effort to play. And assuming we believe that one or more stocks in the final list are going to be worth the effort to invest in them
Back to the Final 2020 Dogs of the Dow
To formally determine which of 2019’s bottom 10 Dow stocks also boast the highest dividend yields for our doggish purposes, we divide the actual closing annual dividend by the closing stock price as of COB, December 31, 2019. That gives us the present the official consensus list of the Final 2020 Dogs of the Dow. So the theory goes, we buy equal amounts of them all and just sit on them for most of 2020. At which point we’re supposed to sell them and make lots of money. That’s because Mr Market slowly corrects what Dogs Theorists feel are America’s most unfairly valued stocks of the new year.
And sometimes, this theory even works! No guarantees, of course. But one thing you can generally count on when investing in Dow Dogs. You’ll get a swell dividend as long as you hold them.
So here they are:
Final 2020 Dogs of the Dow
(Trading symbol, 12/31/19 closing price, dividend percentage at market close)
Quick lowdown on the individual stocks
DOW = DOW Inc.
This one’s the surviving, somewhat trimmed-down chemical business that became a temporary DowDupont conglomerate. That merger was designed by the principals to gather all their disparate businesses together; then re-divide them into more functional entities before spinning the whole shebang back out as three, big, separately listed companies. Which they did late in 2019. Dow was the entity that made it back into the Dow Jones Industrials. This is a transition year, but the business is sound and the dividend is high.
XOM = Exxon/Mobil.
The big, no, VERY big oil conglomerate. Has been boring and fairly flat for years, but has begun to show signs of life as energy appears to be picking back up. On the plus side: A big, fat, 5.12% dividend WILE U WAIT.
IBM = IBM.
At one time, this was America’s high tech stock, a fat dividend payer. You bought the shares, put them in your sock drawer and had the dividends reinvested in more shares forever. The company has been lost seemingly forever as it tries to find a new route for its business. Looks like consulting, data farms and cloud computing could make this one competitive and popular again. Maybe. Anyhow, it’s in the 2020 Dogs of the Dow roster, a distinction the stock has frequently claimed throughout much of this 21st century.
VZ = Verizon.
One of America’s two very-big telcos, both of which morphed into media conglomerates in the new Communications S&P Sector. Rival AT&T (symbol: T) has acquired the sexier media stuff. But Verizon has been making more money sooner. The juicy 4+% dividend is the story here, but so are potential 2020 profits.
CVX = Chevron.
Big oil, obviously, just like Exxon/Mobil. But possibly more dynamic, despite constant headline risk. Oil and energy in general got beaten up in 2019. This sector looks to break out in 2020. We’ll see.
PFE = Pfizer.
This is the only pharmaceutical stock in the 2020 Dogs of the Dow list. While its price has run up late in the year, the PE remains low, the dividend relatively high. And the Health sector in which the company resides, is overdue for a long-awaited breakout. Like in 2020, maybe?
MMM = 3M.
A spectacularly steady, spectacularly boring American manufacturer of whatever you need, particularly if it’s sticky. The company has been around forever, and virtually every American has one or more 3M products in the house. Things were flat for MMM’s business last year, but some analysts think the ship has steadied, perhaps in time to make them some money in 2020. You get a stable, over 3% dividend in the meantime.
WBA = Walgreen-Boots Alliance.
That’s a mouthful. For us in the US, it’s merely the big-time chain of Walgreen’s drug stores /pharmacies. It’s really a big healthcare conglomerate today that merged with Boots, a European fellow traveler. The company had a bad year for a variety of reasons in 2019. But, as it acquires and re-brands many of Rite-Aid’s better locations after government regulators terminated their proposed merger, earnings should be back on the upswing in 2020.
CSCO = Cisco Systems.
The Cisco Kid rides again. The onetime modem and set top box manufacturer, it’s morphed over the years into a networking, security and cloud computing product and services company of tremendous size and scope. After an unspectacular year in 2019, the company seems to have got its mojo back. At least investors hope so.
KO = Coca-Cola.
KO has been scarcely a knockout stock in recent years. But the company seems to have tackled a number of business problems, including the current national thumbs-down boycott of sugary soft-drinks, this company’s onetime mainline business. But with its now-wider variety of beverages and other lines, and with its astonishingly successful introduction of Coke Zero Sugar (to which I am addicted, BTW), KO seems to be on a slow, steady upswing, at least in its most recent quarters. It remains to be seen whether these shares can catch back up to KO’s #1 rival, Pepsi (PEP) in terms of profitability and product mix. But they’re giving it a shot. Which puts them in the final position in the 2020 Dogs of the Dow list.
That’s it for our final 2020 Dogs of the Dow. I’ll probably pick up at least a couple of them for our portfolios. Maybe even today, Friday, since Mr Market continues to get hammered due to the surprisingly efficient elimination of one of the most evil minions of the perpetually and muderously corrupt Iranian regime.
Over time, I tend to think that grabbing the top 5 on this official list of dogs is often the best way to use this idea. But each individual’s results may vary. The Theory itself says you should stock up on all 10, but that’s kind of expensive.
And another word on SDOG
As noted in our previous article on this topic, there’s a terrific ETF proxy for the 2020 Dogs of the Dow. One that includes dogs from a variety of S&P Sectors. It’s entitled the ALPS Sector Dividend Dogs ETF (trading symbol: SDOG). Here’s the way the ETF’s verbiage describes what’s inside the package:
“The underlying index methodology selects the five stocks in ten of the eleven GICS sectors that make up the S&P 500 which offer the highest dividend yields as of the last business day of November.” (No link.)
In calendar year 2019, I averaged into these ETF shares throughout January-February of 2019, buying them commission free and only on selloff days. I got rid of the position around mid-year for a modest gain and a couple of $3+ dividends. Not bad for minimal work.
As far as your portfolio is concerned, whether you invest in all or part the official 2020 Dogs of the Dow, the current edition of SDOG, or some flavor of both, the choice is up to you. But I’ll likely be nibbling at the shares of a few dogs, plus averaging into a small position in SDOG. I’ll tell you what I come up with, FWIW. Then, Mr Market will take it from there.
Also, we now know that whatever we do, our stock positions in general will now be exposed to greater headline risk due to the deteriorating situation in the Middle East.
So best of luck to us all as we attempt to beat our 2019 returns. Which may be a tall order in a volatile national election year. And in a New Year in which the US just knocked off the guy who may have been the world’s leading, practical terrorist.
– Headline image: Who let the Dogs out? Browns mascot Chomps, shown greeting U.S. National Guard members in 2010 at FirstEnergy Stadium in Cleveland, Ohio. Image source: jbarta, Ohio National Guard, via Wikipedia entry on Cleveland Browns, CC 2.0 license.