Buy 3 July Dogs Of The Dow, Watch 6

Foreword

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

However, six more – 3M Co (MMM), Cisco (CSCO), Coca-Cola Co (KO), International Business Machines Corp (IBM), Chevron (CVX), and Amgen Inc. (AMGN) – showed prices within 60% of meeting that goal. The other one, The Goldman Sachs Group (GS), needs prices to drop near 70% before they reach the dogcatcher ideal level.

With renewed downside market pressure of 68.9%, 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 by year’s end.

[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 14.83% To 30.2% Net Gains From Top-Ten Dow Dogs By July 2024

Six of ten top dividend-yielding Dow dogs (tinted gray in the chart below) were among the top ten gainers for the coming year based on analyst 1-year target prices. So, this June, 2023 yield-based forecast for Dow dogs, as graded by Wall St. wizard estimates, was 60% 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 2023-24 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 July, 2024, were:

The Walt Disney Co (DIS) was projected to net $301.95, based on the median of target price estimates from 25 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 28% greater than the market as a whole.

UnitedHealth Group Inc (UNH) netted $227.71 based on the median of target price estimates from 24 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 34% less than the market as a whole.

The Goldman Sachs Group was projected to net $222.26, based on the median of target estimates from 24 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 38% over the market as a whole.

Verizon Communications Inc was projected to net $217.55, 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 62% less than the market as a whole.

NIKE, Inc, (NKE) was projected to net $214.65, based on dividends, plus the median of target price estimates from 34 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 11% greater than the market as a whole.

Chevron Corp was projected to net $214.06, based on the median of target price estimates from 25 analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 16% greater than the market as a whole.

Walgreens Boots Alliance was projected to net $193.67, based on the median of target prices estimated by 15 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 31% less than the market as a whole.

3M Co was forecast to net $169.12, based on the median of target price estimates from 18 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 4% less than the market as a whole.

Coca-Cola Co was projected to net $155.61 based on the median of target price estimates from 24 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 46% less than the market as a whole.

The Travelers Companies (TRV) was projected to net $148.26, based on dividends, plus median target price estimates from 16 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 40% less than the market as a whole.

The average net gain in dividend and price was estimated at 20.65% on $10k invested as $1k in each of these top ten Dow Index stocks. This gain estimate was subject to average risk/volatility 12% 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 July, 2023 Dow 30 By Yield

Actionable Conclusions (11-20): 10 Top Dow Dividend Stocks By Yield Ranged 3.01% To 6.96% Per YCharts

Top ten Dow dogs as of 7/5/23 represented seven of eleven Morningstar sectors.

The lone communication services sector member took first place, Verizon (VZ)[1]. This was followed by two healthcare stocks in second and seventh places, Walgreens Boots Alliance [2] and Amgen Inc [7].

Then, a lone industrials dog was third, 3M Co [3]. In fourth place was the lone basic materials dog, Dow Inc [4].

Technology sector dogs took the fifth, and ninth positions, International Business Machines [5], and Cisco Systems Inc [9].

Another loner from the energy sector was sixth, Chevron [6]. Eighth place belonged to the financial services representative, The Goldman Sachs Group [8], and finally, in tenth, the consumer defensive stalwart, Coca-Cola Co [10] completed the incoming July Dogs of the Dow by yield.

Dividend Vs. Price Results

A graph above shows the relative strengths of the top ten Dow dogs by dividend and price as of market close 7/5/2023.

This month seven of the top-ten Dow dogs show a less than ideal status because the prices of those seven 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 three of the five lowest priced Dogs of the Dow. Verizon Communications, Walgreens Boots Alliance, and Dow Inc, all live up to the dogcatcher ideal of annual dividends from $1K invested exceeding their single share prices. Furthermore, six more, showed prices within $134 of meeting that ideal goal as of July 5. Those six outliers are: Amgen Inc $133.60 off the mark, Chevron Corp $78.64 behind, International Business Machines Corp $52.73 away, 3M Co $21.19 off goal, Coca-Cola Co $18.17 out, and Cisco Systems Inc $12.00 away.

Actionable Conclusion (21): Two of Twenty-Seven 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. They are Intel (INTC), and Walgreens Boots Alliance.

Two cut their dividends in the 2020 Ides of March depression times, Boeing (BA), and The Walt Disney Co. One more snuck onto the Dow index without a dividend, the newest of the three latest no-dividend stocks in the index, Salesforce, Inc. (CRM). All five, two short on cash and three non-dividend payers, are 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, three are ideally priced. Beside Verizon Communications, Walgreens Boots Alliance, and Dow Inc are already in the ideal zone; six more low-priced stocks are within $60.00 of getting there as noted above.

The alternative, of course, could be that these companies raise their dividends. That however appears to be too much to ask in these highly disrupted, inflationary, recessionary, yet cash-rich times. Mr. Market is much 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 12.25% To 31.2% Top Ten Dow Index Upsides To July, 2024; (32) Two -1.26% and -2.52% Downsides Were Revealed

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 1.62% Disadvantage For 5 Highest-Yield, Lowest-Priced of 10 Dow Dogs As Of July 5, 2024

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 selected7/5/23 by yield, represented eight of the eleven sectors. The Consumer Cyclical sector went missing. (Real Estate is not reported and Utilities has its own Dow Index.)

Actionable Conclusions: Analysts Expected 5 Lowest-Priced of the Ten Highest-Yield Dow Dogs (34) To Deliver 16.15% Vs. (35) 16.42% Net Gains by All Ten Come July 5, 2024

$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 1.62% LESS gain than from $5,000 invested in all ten. The very highest-priced top ten yielding stock, The Goldman Sachs Group Inc, showed top analyst-estimated gains of 22.23%.

The five lowest-priced Dow top-yield dogs for July 5 were: Walgreens Boots Alliance Inc; Verizon Communications Inc; Cisco Systems Inc; Dow Inc; Coca-Cola Co, with prices ranging from $29.26 to $61.03.

Five higher-priced Dow top-yield dogs as of July 5 were: 3M Co; International Business Machines Corp; Chevron Corp; Amgen Inc; The Goldman Sachs Group, whose prices ranged from 98.63 to $320.05.

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.

As the Fed-fueled slide gains momentum in 2023, look for most 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 three Dow Index stocks showing dividends (from $1k invested) exceeding single share price: Verizon Communications, Walgreens Boots Alliance, and Dow Inc. however Walgreens is are overbought with dividend yield exceeding free cash flow yield.

The dogcatcher hands off recommendations are still in place referring to three suspects. One that cut its dividend in March, 2020, being Boeing, has re-learned (and is certified in certain countries) to fly, it still has to coax customers to buy planes again. BA faces strong headwinds to stay on the Dow index (despite analyst optimism for the lone U.S. commercial air-crafter).

Also keep hands off the newest non-dividend member of the Dow, Salesforce.com Inc, until it declares a dividend from $1K invested greater than its single share price, perhaps new leadership will help.

While subscriptions keep the ship afloat, Disney needs audiences to get strapped back into buying tickets to watch and ride and will likely never resume a dividend. Meanwhile DIS has Apple, Amazon, Netflix, and Paramount, TikTok, and numerous other content providers pouring out streamable content. Will the mouse house ever roar again, let-alone, pay dividends?

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.