4 High-Yielding Dow Stocks: Are They Worth Buying?
A winning strategy over the years has been what is called the “dogs of the Dow” strategy, whereby investors buy the highest-yielding stocks in the Dow Jones Industrial Average at the beginning of each year and rebalance/reallocate at the beginning of the following year. The idea behind the strategy is that stocks in the Dow are generally large blue chip companies that have consistent earnings power and a competitive advantage. The highest-yielding stocks are also, in many cases, the worst performers, and so the approach is a contrarian one.
While this may not be a completely logical way to invest, it is a strategy that makes sense, and while I don’t think it should be followed religiously, investors should consider purchasing shares in the higher-yielding stocks in the Dow. The following four stocks are the highest yielding in the Dow, and investors looking for income from lower-risk large-cap stocks should consider taking positions in them.
1 and 2. AT&T and Verizon
The two highest-yielding stocks in the Dow are AT&T (NYSE:T) and Verizon (NYSE:VZ), the two telecommunications companies in the index. These companies have extremely stable businesses that consistently generate cash flow: people who purchase telecommunication plans make regular monthly payments to their service providers. This makes AT&T and Verizon consistent performers. However, both stocks have underperformed in the past year. Investors gravitated toward growth stocks rather than safe dividend payers. Furthermore, while these companies have steady cash flow, they also have a lot of expenses — both companies and their smaller competitors need to make sure that they have the best networks, and this means that they are constantly upgrading them.
But all of this negativity has led to what appears to be an opportunity in both stocks. They trade with low double-digit P/E ratios despite showing signs of growth. Furthermore, they pay very high yields in a market where interest rates are low and high quality dividends are difficult to find. AT&T pays 5.3 percent and Verizon pays 4.6 percent. Either or both of these stocks would make an excellent addition to a value and income-oriented portfolio.