February Dogs Of The Dow: Buy 2, Watch 5

Foreword

While two thirds of this collection of Dow Industrials is too pricey and reveals only skinny dividends, two of the five lowest priced Dogs of the Dow are ready to buy. This month, Verizon Communications Inc. (VZ), and Walgreens Boots Alliance (WBA), live up to the dogcatcher ideal of annual dividends from $1K invested exceeding their single share prices.

However, five more, Dow Inc. (DOW), Cisco Systems (CSCO), Coca-Cola Co. (KO), 3M Co. (MMM), and Chevron (CVX), showed prices within 49% of meeting that goal.

With renewed downside market pressure of 73%, it would be possible for all ten to become elite fair-priced dogs with their annual yield (from $1K invested) meeting or exceeding their single share prices.

[See a summary of top ten fair-priced May Dow Dogs in Actionable Conclusion 21 near the middle of this article.]

Actionable Conclusions (1-10): Brokers Expect 10.99% To 23.09% Net Gains From Top-Ten Dow Dogs By February 2025

Five of ten top dividend-yielding Dow dogs (tinted gray in the chart below) were among the top ten price gainers for the coming year based on analyst 1-year target prices. So, this February, 2024 yield-based forecast for Dow dogs, as graded by Wall St. wizard estimates, was 50% accurate.

Estimated dividend-returns from $1000 invested in the ten highest-yielding stocks and their aggregate one-year analyst median target prices, as reported by YCharts, created the 2024-25 data points for the projections below. (Note: one-year target prices estimated by lone analysts were not applied.) Ten probable profit-generating trades projected to February, 2025 were:

Nike Inc. (NKE) was projected to net $230.99 based on the median of target prices estimated by 37 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 11% greater than the market as a whole.

Boeing Co. (BA) was projected to net $223.64, based on dividends, plus median target price estimates from 29 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 56% greater than the market as a whole.

3M Co. was projected to net $206.36, based on dividends, plus the median of target price estimates from 18 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 2% greater than the market as a whole.

Chevron Corp. was projected to net $193.14, based on dividends, plus the median of target price estimates from 24 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 13% greater than the market as a whole.

Walgreens Boot Alliance netted $187.54 based on the median of target price estimates from 16 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 36% less than the market as a whole.

UnitedHealth Group Inc. (UNH) was projected to net $171.04 based on the median of target price estimates from 26 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 46% less than the market as a whole.

Johnson & Johnson (JNJ) was projected to net $135.27, based on the median of target price estimates from 23 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 47% less than the market as a whole.

Honeywell International Inc. (HON) was projected to net $132.18, based on dividends, plus the median of target price estimates from 23 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 5% greater than the market as a whole.

Dow Inc. was projected to net $124.39, based on dividends, plus the median of target price estimates from 20 analysts, less broker fees. A Beta number is still not available for DOW.

JPMorgan Chase & Co. (JPM) was projected to net $109.98, based on the median of target price estimates from 24 analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 14% greater than the market as a whole.

The average net gain in dividend and price was estimated at 17.15% on $10k invested as $1k in each of these top ten Dow Index stocks. This gain estimate was subject to average risk/volatility 2% less than the market as a whole.

The Dividend Dogs Rule

Stocks earned the “dog” moniker by exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as “dogs.” More precisely, these are, in fact, best called, “underdogs”.

The February, 2024 Dow 30 By Yield

Actionable Conclusions (11-20): 10 Top Dow Dividend Stocks By Yield Ranged 2.84% To 6.32% Per YCharts

Top ten Dow dogs as of 2/2/24 represented eight of eleven Morningstar sectors.

A lone industrials dog placed first, to lead the pack, 3M Co. [3]. There followed the lone communication services sector member in second place, Verizon [2]. Then, In third place was the lone basic materials dog, Dow Inc. [3].

The first of two healthcare stocks placed fourth, Walgreens Boots Alliance [4]. The other fell to the ninth place, Johnson & Johnson [9]. Another loner from the energy sector was fifth, Chevron [5].

Then, two technology sector dogs took the sixth and seventh positions: International Business Machines (IBM) [6], followed by its compatriot techno firm, Cisco Systems [7].

Finally, in eighth place, the consumer defensive stalwart, Coca Cola Co. [8] and the lone financial services member placed tenth, The Goldman Sachs Group (GS) [10] to complete the February Dogs of the Dow by yield.

Dividend Vs. Price Results

A graph above shows the relative strengths of the top ten February Dow dogs by dividend and price as of market close 2/2/2023.

This month eight of the top-ten Dow dogs show a less than ideal status because the prices of those eight exceed projected annual dividends from $10k invested (as $1k each).

A dividend dogcatcher priority is to select stocks whose dividends from $1K invested are greater than their single share price. As mentioned above, that condition was reached by two of the five lowest priced Dogs of the Dow. Verizon Communications, and Walgreens Boots Alliance, both live up to the dogcatcher ideal of annual dividends from $1K invested exceeding their single share prices.

However, five more, Dow Inc., Cisco Systems, Coca-Cola Co., 3M Co., and Chevron, showed prices within 49% of meeting that goal.

Actionable Conclusion (21): Two of Twenty-Eight Dow Dividend Dogs Are Overbought

A negative gap between dividend yield and free cash flow yield defines an overbought (or oversold) stock. That is, their dividend payout exceeds their cash on hand to pay dividends. The three are The Goldman Sachs Group, Intel (INTC), and Walgreens Boots Alliance.

Two cut their dividends in the 2020 Ides of March depression times, Boeing , and The Walt Disney Co. (DIS). One more snuck onto the Dow index without a dividend. That one is the newest of the two latest no-dividend stocks in the index, Salesforce Inc. (CRM). Now Disney is back in the dividend paying ranks. However five (three short on cash and two non-dividend payers) cast a pall on the Dow by being not stockholder friendly.

Remember this dogcatcher yield-based stock-picking strategy is contrarian. That means rooting for (buying) the underdog is productive when you don’t already own these stocks. If you do hold these stocks, then you must look for opportune pull-backs in price to add to your position to best improve your dividend yield. Plenty of pull-back opportunities appear to be ahead.

Price Drops or Dividend Increases Could Get All Ten Dow Dogs Back to “Fair Price” Rates For Investors

The charts above retain the current dividend amount and adjust share price to produce a yield (from $1K invested) to equal or exceed the single share price of each stock. As the top illustration shows, two are already ideally priced. Beside Verizon Communications, and Walgreens Boots Alliance, already in the ideal zone, eight more low-priced stocks are within $283 of getting there.

The alternative, of course, could be that these companies raise their dividends. That may be too much to ask in these highly disrupted, inflationary, recessionary, yet cash-rich, and volatile times. Mr. Market is far more effective at moving prices up or down to appropriate amounts, just watch and buy when the targeted stock price moves to a sweet spot.

Actionable Conclusions: (22-31) Broker 1-Yr. Targets Showed 9.60% To 23.36% Top Ten Dow Index Upsides To February, 2025; (32) Five -1.70% to -11.39% Downsiders Were Found

To quantify top dog rankings, analyst median price target estimates provided a “market sentiment” gauge of upside potential. Added to the simple high-yield “dog” metrics, analyst median price target estimates provided another tool to dig out bargains.

Analysts Forecast A 1.9% Advantage For 5 Highest-Yield, Lowest-Priced 10 Dow Dogs As Of February 2, 2025

Ten top Dow dogs were culled by yield for their monthly update. Yield (dividend / price) results as verified by YCharts did the ranking.

As noted above, top-ten Dow dogs selected 2/2/24 by yield, represented eight of the eleven sectors. The Consumer Cyclical sector went missing. (Real Estate is not reported by the Dow and Utilities has its own Dow Index.)

Actionable Conclusions: Analysts Expected 5 Lowest-Priced of the Ten Highest-Yield Dow Dogs (34) To Deliver 12.62% Vs. (35) 12.39% Net Gains by All Ten Come February 2, 2025

$5000 invested as $1k in each of the five lowest-priced stocks in the top ten Dow Dividend kennel by yield were predicted by analyst 1-year targets to deliver 10.17% more gain than from $5,000 invested in all ten. The sixth lowest-priced top ten yielding stock, 3M Co. showed top analyst-estimated gains of 20.64%.

The five lowest-priced Dow top-yield dogs for February were: Walgreens Boots Alliance Inc; Verizon Communications Inc; Cisco Systems; Dow Inc; Coca-Cola Co., with prices ranging from $22.63 to $60.54.

Five higher-priced Dow top-yield dogs as of February 2 were: 3M Co; Chevron Corp; Johnson & Johnson; International Business Machines Corp; The Goldman Sachs Group Inc, whose prices ranged from $94.87 to $387.86.

The distinction between five low-priced dividend dogs and the general field of ten reflected Michael B. O’Higgins’ “basic method” for beating the Dow. The scale of projected gains based on analyst targets added a unique element of “market sentiment” gauging upside potential. It provided a here-and-now equivalent of waiting a year to find out what might happen in the market.

Caution is advised, since analysts are historically only 15% to 85% accurate on the direction of change and just 0% to 15% accurate on the degree of change. (In 2017 the market somewhat followed analyst sentiment. In 2018 analysts estimates were contrarian indicators of market performance, and they continued to be contrary for the first two quarters of 2019 but switched to conforming for the last two quarters.) In 2020 analyst projections were quite contrarian.

The first half of 2021 most dividend stock price actions exceeded all analyst expectations. The last half of 2021 was still gangbusters. The 2022 September-December slump freed-up five or more Dow dogs, sending them into the ideal zone where returns from $1k invested equal (or exceed) their single-share price. 2023 continued the slide. Watch for 3M to join the “ideal” four or five before the year ends or after the new year. A Santa Claus rally staved off the eventual 2024 depression.

As the dithering Fed-fueled slide gains momentum in 2024, look for at least half of the ten Dow Dogs to become Fair-priced… slowly, but surely.

Afterword

Lest there be any doubt about the recommendations in this article, this month there were two Dow Index stocks showing dividends (from $1k invested) exceeding single share price: Verizon Communications, and Walgreens Boots Alliance. However Walgreens is overbought with dividend yield exceeding free cash flow yield. Two other overbought Dow Index members are Intel Corp, and The Goldman Sachs Group.

The net gain/loss estimates above did not factor in any foreign or domestic tax problems resulting from distributions. Consult your tax advisor regarding the source and consequences of “dividends” from any investment.

Stocks listed above were suggested only as possible reference points for your Dow dividend dog stock purchase or sale research process. These were not recommendations.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from Indexarb; YCharts; finance.yahoo.com; analyst mean target price by YCharts. Open source dog art from dividenddogcatcher.com.