Considering joining the “Dogs of the Dow” club in 2021?
The Dogs of the Dow is a stock-picking strategy, ideal for passive-income seekers, that invests in the 10 highest dividend-yielding stocks from the DJIA at the start of the new year.
Accordingly, at the end of the year, investors choose the 10 members of the index that have the highest dividend yield. Then, they invest in these 10 stocks for 12 months. A year later, they repeat the process to rebalance their portfolios.
Followers of this strategy regard the high-dividend yield as a potential sign that a company's share price has bottomed out. Therefore, they are happy to take a contrarian view as they believe the stock could rebound in the coming months.
Overall year-to-date, the {{169|Dow Jones Industrial Average}} is up over 5%. Similarly, the SPDR Dow Jones Industrial Average ETF (NYSE:DIA), which tracks the index, has also returned over 5%. DIA’s current price supports a dividend yield of almost 2%. We recently covered}} the index.
Dow Dogs Of 2021
For investors interested in the “Dogs of the Dow” strategy in 2021, one would now be looking at the following 10 stocks:
- Energy leader Chevron (NYSE:{{240|CVX)
- Chemical and materials giant Dow (NYSE:DOW)
- Information Technology group International Business Machines (NYSE:IBM)
- The largest U.S. bank by assets JPMorgan Chase (NYSE:JPM)
- Pharma group Merck (NYSE:MRK)
- Multinational manufacturing conglomerate 3M (NYSE:MMM)
- Global pharmacy retailer Walgreens Boots Alliance (NASDAQ:WBA)
- Networking technology leader Cisco Systems (NASDAQ:CSCO),
- Non-alcoholic beverage group Coca-Cola (NYSE:KO), and
- Verizon Communications (NYSE:VZ), which is leading the 5G rollout efforts as one of the largest communication technology companies worldwide
There are currently no exchange-traded funds that provide specific exposure to these 10 stocks only. However, several funds that represent efforts to maximize dividend yield could be of interest. Here are two:
1. Invesco Dow Jones Industrial Average Dividend ETF
Current Price: $37.76
52-Week Range: $25.21 – $39.97
Dividend Yield: 3.5%
Expense Ratio: 0.07%
The Invesco Dow Jones Industrial Average Dividend ETF (NYSE:DJD) invests in dividend-paying companies in the DJIA by their 12-month dividend yield over the previous 12 months. The fund is balanced semi-annually.
DJD tracks the Dow Jones Industrial Average Yield Weighted Index. The fund was first listed in December 2015 and its assets under management are close to $123 million.
More than 55% of the fund is allocated to the top 10 names. Dow, Chevron, Walgreens Boots Alliance, International Business Machine and JPMorgan Chase lead the names in the fund.
Since the start of the year, DJD is down about 5%, underperforming the DJIA.
The trailing P/E ratio and P/B ratios are 22.03 and 5.38, respectively. Given how far many of the names in the fund have gone up since early spring, some short-term selling could put pressure on the ETF. A potential decline toward $36 or lower would improve the margin of safety.
2. ALPS Emerging Sector Dividend Dogs ETF
Current Price: $22.27
52-Week Range: $13.43 – $22.96
Dividend Yield: 5.9%
Expense Ratio: 0.60%
Our next fund takes us outside the U.S. The ALPS Emerging Sector Dividend Dogs ETF (NYSE:EDOG) invests in an equal-weighted basket of 50 large-cap emerging market stocks selected for their high dividend yields. The fund, which is rebalanced quarterly, started trading in March 2014 and has about $23 million under management.
EDOG tracks the returns of the S-Network Emerging Sector Dividend Dogs Index, which includes large-cap companies from emerging markets (EM). The index chooses the five highest dividend-yielding securities in 10 of the 11 Global Industry Classification Standard (GICS®) sectors (excluding the Real Estate sector). We covered}} the 11 GICS sectors recently.
As far as sectors are concerned, utilities lead with 10.19%, followed by energy (9.92%) and health care (9.79%). Some of the top names in the fund include electronic equipment manufacturer and supplier Delta Electronics (BK:DELTA) from Thailand, utility conglomerate CEZ (WA:CEZ) from the Czech Republic, India-based global consulting and IT services group Infosys (NYSE:INFY), Africa's largest pay-TV company MultiChoice (OTC:MCHOY), which has its headquarters in South Africa, and offline retail platform Falabella (SN:FALABELLA) from Chile.
Year-to-date, the ETF has returned almost 1%. We believe the fund could be on the radar of passive-income seekers who are also looking at EM shares. A potential decline toward $20 would improve the risk-return profile for long-term investors.
On a final note, ALPS Advisors offers three other "Dividend Dogs" funds: the ALPS Sector Dividend Dogs ETF (NYSE:SDOG), ALPS REIT Dividend Dogs ETF (NYSE:GRI) and the ALPS International Sector Dividend Dogs ETF (NYSE:{{941450|IDOG).