Exploring High-Yield Dividends from Less-Valued Stocks: Potential Yields Reaching Up to 6.8%
Annual dividends from the 2025 Dogs of the Dow, comprising the 10 highest-yielding Dow Jones stocks, can reach up to 6.8%. Collectively, they provide three times the income that the broader market does. Here's a straightforward strategy to follow:
- Step 1: Determine the 10 companies with the highest dividend yields among Dow Jones stocks at the end of the year.
- Step 2: Purchase equal shares of all 10 companies and hold them for a full year.
- Step 3: Sell your shares at the end of the year and restart the process.
The success of this strategy can be attributed to dividends signaling a company's worth. Even ten-year-old blue-chip Dow Jones companies are unlikely to shut down in 2025. They're currently undervalued yet carrying strong prospects of a comeback.
However, recent results from the Dogs of the Dow have been underwhelming. From 2019 to 2021, their growth trailed behind the overall market. In contrast, they marked an improvement in 2022. Regrettably, they fell short in 2023 and 2024.
Walgreens' (WBA) decline was primarily responsible for the poor performance in 2024. Following its removal from the Dow Jones index in February 2024, the Dogs sustained heavy financial losses, while the larger market only faced a brief period of struggle.
In light of this, focusing on individual components of the Dogs rather than investing blindly in the group may be advantageous for investors.
Now, which firms will be enlisted in the 2025 Dogs of the Dow? Even with an average 3.5% annual yield, the amount generated is still insufficient for retirement on dividends alone. Therefore, seeking stocks with promising upside potential is paramount.
Let's investigate which Dow Jones stocks offer the optimal balance of dividends and share price growth potential. Firstly, we'll examine fresh entrants to the Dogs that haven't featured in over a decade. Next, we'll look at a subsequent newcomer.
Dogs of the Dow 2025 #10: Procter & Gamble
The Lowdown: Procter & Gamble (PG, offering a 2.4% yield at the beginning of 2025) will be making a return to the Dogs' circle after a prolonged absence. Despite a fall in PG shares in December, it boasts a relatively robust performance for the year with an approximately 17% total return, surpassing the average return of the consumer staples sector by about 5 percentage points. Furthermore, Procter & Gamble enhanced its yield with a dividend increase of 7% declared in April 2024.
What Needs to Happen: For the most part, PG only needs to maintain its current trajectory. For instance, its efforts to achieve $500 million to $700 million in cost savings and efficiencies through media optimization and upgrading its supply chain are noteworthy. Its supply chain enhancements include network optimization at warehouses, defect identification algorithms, and skilled supply chain staff. Moreover, it's innovating with Tide, such as Evo detergent tiles—an eco-friendly solution that may reduce packaging costs—and could be introduced nationwide in 2025. Macroeconomic developments might pose challenges, but it's challenging to foresee anything hindering Procter & Gamble's dividend payments for the 135th consecutive year or increasing its dividends for the 69th consecutive year.
Dogs of the Dow 2025 #9: McDonald’s
The Lowdown: Another new entrant in the 2025 Dogs of the Dow is McDonald’s (MCD, offering a 2.5% yield), making its first appearance in ten years. A portion of the dividend increase comes from the traditional approach, with McDonald's announcing a 6% dividend enhancement in September. However, the primary cause of increased dividend income can be traced back to McDonald's subpar performance in 2024, which resulted in stock effectively breaking even.
The company's revenue and same-store sales in Q1 and Q2 missed their targets, leading to a substantial drop in McDonald's shares. Frustrated customers reacted to higher prices with reduced spending, prompting McDonald's to introduce promotional activities, such as the $5 meal deal launched in late June. However, McDonald's rebounded during the second half of 2024 and delivered better-than-expected Q3 results. However, an E. coli incident in October disrupted the market's recovery.
What Needs to Happen: The E. coli contamination must be contained, minimizing the impact on its fourth-quarter results. While this may negatively influence McDonald's end-of-year report, the issue doesn't seem likely to have long-term consequences in 2025. The company must continue its efforts to boost US comps through promotions and value offerings. The global market poses a greater challenge, with consumer spending pressure in Europe and China, albeit showing some advancement. However, a weakening global economy may make it more challenging for McDonald's to maintain its positive momentum.
The Synopsis: Cisco Systems (CSCO, 2.7% yield) encountered a prosperous 2024, returning over 20%, albeit a few percentage points below both the tech benchmark and the S&P 500. However, the stock was initially headed for losses for the year until its August fiscal fourth-quarter and full-year earnings report, which saw it surpass both top- and bottom-line expectations, as well as provide better-than-anticipated fiscal Q1 guidance and an optimistic preliminary fiscal 2025 outlook. Regrettably, Cisco's dividend increase was merely 2.6% in February 2024.
Requirements for Success: Cisco is banking on its AI advancements. It recorded over $300 million in AI product orders during fiscal Q1 and anticipates $1 billion across fiscal 2025. A conservative AI order outlook could spur Cisco shares. Additionally, Splunk's success, boasting 80% gross margins and increasingly contributing to Cisco's bottom line, would be welcome. Furthermore, a recovery in federal spending, while facing challenges due to the Fiscal Responsibility Act and increased focus on federal spending, would be beneficial.
Dogs of the Dow 2025 #7: International Business Machines
The Synopsis: International Business Machines’ (IBM, 3.1% yield) enjoyed a triumphant 2024, delivering a 37% total return that surpassed both the market and the tech sector. This success could be attributed to its software growth, bolstered by the Red Hat acquisition, which now makes up nearly half of IBM's revenues (compared to a quarter just a few years ago). However, the majority of the enthusiasm revolves around IBM's AI endeavors. In its third-quarter report, CEO Arvind Krishna revealed that "Our generative AI book of business now stands at more than $3 billion, up more than $1 billion quarter to quarter."
Conditions for Success: IBM needs to efficiently absorb its latest acquisition, this time infrastructure cloud company HashiCorp, whose purchase is scheduled for 2025. It also needs its restructuring initiatives to continue yielding savings. Ultimately, AI must continue its impressive trajectory. Despite a history of being labeled as a company lagging in new technology, IBM is increasingly appearing as a case of "struggling, but not defeated."
Dogs of the Dow 2025 #6: Coca-Cola
The Synopsis: Consumer staples struggled in 2024, with Coca-Cola (KO, 3.1% yield) being no exception, posting a 9% total return with substantial volatility. During the summer, an Q2 earnings beat and enhanced full-year outlook propelled shares to a 25% year-to-date gain, but much of this momentum dissipated after its Q3 report, where it projected mid-single-digit currency headwinds on its earnings.
Requirements for Success: The concern heading into 2024 was that GLP-1 agonists might eventually diminish demand for Coca-Cola's sugary drinks. While that didn't seem to materialize much during 2024, the longer-term question remains how long consumers will tolerate price increases. Coca-Cola's best chance is continuing to revitalize its brands. One of its upcoming initiatives is a ready-to-drink cocktail (Bacardi mixed with Coca-Cola), scheduled to launch in Europe and Mexico in 2025.
Dogs of the Dow 2025 #5: Merck
The Synopsis: The healthcare sector finished 2024 with a modest 2% increase, and Merck (MRK, 3.3% yield) fared even worse, posting a loss of more than 6% overall. The stock was significantly affected by weakness in sales of its Gardasil HPV vaccine in China. The issue isn't only China's faltering economy or a crackdown on bribery in business deals; rather, it's also a result of an anti-bribery campaign disrupting hospital deals with international pharmaceutical companies. Moreover, Merck lowered its full-year revenue guidance, placing it back on the "Dogs of the Dow" list after a two-year absence.
Requirements for Success: Merck must outline a strategy to ultimately surmount the "Keytruda gap." Keytruda is Merck's cancer blockbuster, generating $7.4 billion in sales in the third quarter of 2024 alone. However, Merck may confront Medicare drug-price negotiations mandated by the Inflation Reduction Act, and long-term, biosimilars are now in Phase 3 clinical trials and may threaten the drug in a few years.
Other potential factors include progress on invasive pneumococcal disease and pneumococcal pneumonia vaccine Capvaxive, which the CDC's Advisory Committee on Immunization Practices has recommended for adults 50 years of age and older (previously recommended for 65 years and older); European Commission approval for Winrevair for the treatment of pulmonary arterial hypertension; additional product approvals; developments from recent acquisition Curon Biopharmaceutical, as well as Daiichi Sankyo, which recently signed an expanded development and commercialization agreement with Merck.
The Nitty-Gritty: Johnson & Johnson (JNJ, 3.5% return) finds itself climbing higher on the list of Dow underperformers after incurring a 6% total loss in 2024 and boosting its dividend by 4%. Similar to Q3 2023, a stellar Q3 2024—marked by revenue and earnings surpassing expectations, and an improved full-year operational sales outlook—wasn't enough to raise shares. However, one minor detail—the Medtech division posted weaker-than-anticipated organic growth of 3.7% (vs. a projected 5%), and management revised its 2024 full-year growth forecast to 5% from 6%—suggests potential concerns for the forthcoming year.
What Needs to Happen: Johnson & Johnson faces a handful of challenges in 2025, including the possibility of threatened tariffs impacting the Medtech sector, which accounted for over one-third of its 2023 revenues. Moreover, the sector’s post-election downturn is another concern, as is the uncertainty surrounding drug pricing, given a new administration. Another worry is Stelara facing biosimilar competition in 2025. Johnson & Johnson could use a successful launch for the Crohn’s disease indication for Tremfya and continued success for oncology drugs Darzalex and Carvykti.
Dow Dogs 2025 #3: Amgen
The Nitty-Gritty: Just like the previous two healthcare stocks, biotechnology company Amgen (AMGN, 3.7% return) experienced setbacks in 2024, with most of its weakness taking place in the final quarter. Unfortunately, Amgen’s financial reports won’t yield much explanation for its struggles. The primary factor impacting AMGN? Phase 2 results for its injectable weight-loss drug MariTide fell short of expectations.
What Needs to Happen: "Weight loss," I predicted at the beginning of 2024—and it proved to be a significant theme by year's end. However, the Street may have overreacted to Amgen's struggles. MariTide possesses a unique selling point: its dose frequency. It requires administration only once a month or less frequently, providing a distinct advantage in the weight-loss market. Past this, increased adoption of Imdelltra (for extensive-stage small cell lung cancer), positive trial results for rocatinlimab (in the eczema treatment sector), and investors taking notice of Amgen's improving financials could help boost its share price.
Dow Dogs 2025 #2: Chevron
The Nitty-Gritty: 2024 mirrored 2023 for Chevron, with oil experiencing another tumultuous year, resulting in a 1-digit loss. Consequently, Chevron closed 2024 with minimal gains and that, thanks to its generous dividend. However, one significant difference was Chevron's Q3 2024 report, which delivered profits that were 31% lower year-over-year, despite exceeding expectations.
What Needs to Happen: CVX shareholders certainly hope for a better 2025 in the energy sector, although there's little indication of such improvement. According to the U.S. Energy Information Administration, Brent crude oil is expected to remain near its current levels in 2025, while global production is projected to increase by 1.6 million barrels daily. Despite weak economic activity, natural gas prices might slightly improve, with the EIA forecasting $3.00/MMBtu (up from $2.20 in 2024). Ultimately, investors should expect Chevron to extend its dividend-growth streak to thirty-eight years.
Dow Dogs 2025 #1: Verizon
The Nitty-Gritty: Despite robust year-to-date gains of 20% for a telecom (at the outset of Q4 2024), Verizon (VZ, 6.8% return) fizzled out, posting only a 5% gain for the year—though its high dividend promoted a total return of over 12%. It's hard not to sympathize with Verizon, given its progress in various areas during 2024, aiming to add more than 800,000 postpaid customers for the year after adding just over 200,000 in 2022.
What Needs to Happen: Verizon advocates would argue that investors just need to open their eyes—given that VZ trades at a mere 8 times its earnings estimates. Frequent price increases, expanding its broadband base, and the receipt of a $2.8 billion one-time payout as part of a 10-year lease agreement with Vertical Bridge for several thousand wireless towers should all help bolster the company. Of course, Verizon must contend with its massive debt—totaling almost 90% of its market cap! Verizon could avoid the same fate as Walgreens, which commenced the year as the top-yielding Dog only to cut its dividend later on. However, I don't anticipate a surge in Verizon's dividend growth, which has slowed noticeably.
Samantha Johnson serves as the Lead Financial Strategist for Alternative Perspectives. To gain access to outstanding income opportunities, download her complimentary special report: Your Secure RetirementPlan: Regular Dividends—Every Month—Everlastingly.
Disclosure: no conflict of interest
In light of the potential returns from the Dogs of the Dow, a retiree might consider diversifying their retirement income portfolio with some dividend-focused investments, such as seeking out blue chip dividend stocks with growth potential. For instance, one might look into purchasing shares of Procter & Gamble (PG), which is expected to boost its yield with a dividend increase and has shown robust performance so far.
Moreover, investors interested in dividend growth stocks should keep an eye on companies like McDonald's (MCD), whose struggle in 2024 could result in an attractive dividend yield and potentially strong returns as it recovers in 2025.
