A popular investing strategy is set to add two blue chip stocks for dividend hungry investors in 2024. The “Dogs of the Dow,” popularized by investor Michael O’Higgins in the early 1990s, is a simple idea: buy the 10 highest-dividend yielding members of the Dow Jones Industrial Average at the start of every year, and see if they can bring price appreciation in addition to cash payouts. The strategy does have some theory behind it. Because the Dow is made up of well established companies, the Dogs of the Dow typically has a high quality-tilt. And by focusing on the dividend yield, which often rises when a stock price falls, investors following the strategy could be buying the stocks when they are cheap relative to their history and potentially due for a rebound. With the options market implying that traders expect the Federal Reserve to cut rates in 2024, next year could be a favorable one for stocks with healthy dividend yields, Kevin Simpson, founder and chief investment officer at Capital Wealth Planning, told CNBC. “It’s not that simple of a calculus because you have to look at the fundamentals of the company. But if we look at it from a broad perspective, you would be expecting the strategy to do better in an environment when interest rates are going down as opposed to increasing,” Simpson said. The strategy is not a winner every year. The Dogs outperformed the broader market in 2022 , when equity markets declined. But they have lagged the S & P 500 in 2023 as the “Magnificent 7” have led the market higher. As of Friday, an equal weighted portfolio of the Dogs of the Dow would have a total return of just 6.7% for the year, which is modestly worse than the full Dow and well below the S & P 500 and Nasdaq Composite . Given the underperformance, it is not a huge surprise that just two of the members are poised to break out of the top 10 dividend yields for next year. As of Friday, JPMorgan and Intel were on track to be replaced in the Dogs list by Coca-Cola and Goldman Sachs . The list could still change by the end of the year. Of course, investors can follow the spirit of the Dogs of the Dow theory without buying all 10 names. Simpson currently owns six of the ten names on the preliminary 2024 list, including Coca-Cola, IBM and Verizon . He highlighted Verizon as a stock that appears to have stabilized after a rocky few years and is improving its fundamentals. “They’ve had tremendous capital expenditures for 5G, and now they’re trying to right size their balance sheet. They do have a lot of debt, but they were smart about it before rate hikes to lock in a lot of low interest rate paper,” Simpson said.
