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Can Dogs of the Dow ETFs Snap Losing Trend in 2024?

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The Dogs of the Dow in 2023 are up an average of just 2.8%, lagging the market by the widest amount since 2006, per Bespoke Investment Group, as quoted on Investors Business Daily. But more importantly, the Dogs of the Dow trailed the market in four of the past five years, Bespoke found.

Investors should note that the Dogs of the Dow represents the 10 highest-yielding blue-chip companies of the Dow Jones Industrial Average, picked after the stock market closes on the last day of the year. The stocks that form the Dogs of the Dow are likely to change every year because the relative dividend yields keep changing, thanks to the components’ regular dividend hikes and the changes in stock prices.

So, the outperformers often leave the Dogs list, allowing stocks that are in the oversold territory and that have seen their yields rising. Dividend stocks essentially erased their strong 2022 returns this year as 2023 can be defined as the year of strong Wall Street gains.Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report) is up 4.5% this year versus 24.2% gains in the S&P 500.

Investors now may try to foresee what lies ahead of Dogs of Dow in 2024. This is especially true given the Dow Jones hit a record high lately. The blue-chip index is in strong momentum just ahead of the Santa Claus rally.  

Can Dogs of the Dow ETF Strategy Outperform in 2024?

The strength of the Dow Dogs weakened in 2023 as rates remained high. Apart from the Federal Reserve's rate hikes, increasing inflationary pressures caused a rise in Treasury bond yields, casting a pall over the Dogs. But with the Fed expected to cut rates 75 bps in 2024, dividend stocks have chances for a solid comeback.

Dividend Dogs of The Dow

You can invest in individual stocks with high dividends for potential gains. As of now, analysts highly recommend Chevron (CVX - Free Report) for the upcoming year. This energy company offers a 4.04% yield, significantly exceeding the S&P 500's average. Based on short-term price targets offered by 17 analysts, the average price target for Chevron comes to $182.88. This equates to a 22.18% upside potential for the stock.

Then comes Verizon Communications (VZ - Free Report) . Based on short-term price targets offered by 17 analysts, the average price target for Verizon Communications comes to $41.26, resulting in 9.53% upside potential. Verizon yields 7.06% annually.

Dow (DOW - Free Report) yields 5.16% annually. Based on short-term price targets offered by 13 analysts, the average price target for Dow Inc. comes to $56.15, resulting in 6.50% upside potential.

3M (MMM - Free Report) yields 5.67% annually. Based on short-term price targets offered by 12 analysts, the average price target for 3M comes to $109.75, marking a 3.7% upside potential.

Coca-Cola (KO - Free Report) yields 3.12% annually. Based on short-term price targets offered by 15 analysts, the average price target for Coca-Cola comes to $65.33, marking a 1069% upside to average price target.

The Goldman Sachs Group (GS - Free Report) yields 2.92% annually. Based on short-term price targets offered by 18 analysts, the average price target for Goldman Sachs comes to $393.44. This translates into a 4.53% upside to the average price target.

Amgen (AMGN - Free Report) yields 3.09% annually. Based on short-term price targets offered by 18 analysts, Amgen stock has an upside potential of 2.08% to average price target.

Although Walgreens Boots Alliance (WBA - Free Report) has a Zacks Rank #4 (Sell), the stock yields 7.69% annually. Based on short-term price targets offered by 13 analysts, the average price target for Walgreens Boots Alliance comes to $28.31. Upside to average price target is 13.33%, though risk is high.

Then again, Cisco Systems (CSCO - Free Report) has a Zacks Rank #4 and a yield of 3.11%. Upside to average price target offered by 15 analysts is 10.53% (read: Dow Jones ETFs at Record High: More Rally Expected in 2024?).

ETFs in Focus

Apart from DJD, investors can keep a tab on ALPS Sector Dividend Dogs ETF (SDOG - Free Report) and SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report) . While DJD yields 4.37%, SPYD and SDOG yield 4.72% and 4.14% annually.

Any Caution?

Apart from rising rate concerns, several factors should now be kept in mind to bet on dividend dogs. The attractive dividend yield does not necessarily suggest these companies’ financial strength.  They could be in the bottom of the business cycle. Also, the high yield can be the result of lower stock prices. An analyst also pointed out that the "Dogs of the Dow" strategy does not consider share buybacks, “which are functionally equivalent.”

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