The “Dogs of the Dow” strategy consists of investing in the 10 highest-yielding stocks in the Dow Jones Industrial Average. Purchasing the Dogs of the Dow creates higher dividend income, by focusing on high-yielding stocks.
The following three stocks are part of the 10 Dogs of the Dow for 2024. They are not the highest-yielding Dow stocks, but they are among the top 10 and also have strong dividend growth potential in the years ahead.
3M (MMM)
3M (NYSE:MMM) is a diversified industrial manufacturer that sells more than 60,000 products. The company operates four separate divisions: Safety and Industrial, Healthcare, Transportation and Electronics, and Consumer. 3M is facing several lawsuits, including nearly 300,000 claims that its earplugs used by U.S. combat troops and produced by a subsidiary were defective. On Sept. 18, 2023, 3M agreed to pay $6.01 billion to settle lawsuits regarding the defective ear plugs. Additionally, the company is still waiting to hear if its $10.3 billion water utility settlement will be approved with more than 20 states.
In the most recent third quarter, revenue declined 3.6% to $8.3 billion, but this was $280 million above estimates. Adjusted earnings per share (EPS) of $2.68 was 33 cents more than projected. Adjusted organic growth fell 3.1% for the period. Health Care had organic growth of 2.4%, while Transportation and Electronics, Consumer, and Safety and Industrial were down 1.8%, 7.2%, and 5.8%, respectively.
3M updated its outlook for 2023 as well, with the company now expecting adjusted EPS in a range of $8.95 to $9.15 for the year, up from $8.60 to $9.10 previously. 3M’s innovation is one of the company’s greatest competitive advantages. The company targets research and development (R&D) spending equivalent to 6% of sales (about $2 billion annually) to create new products to meet consumer demand. This spending has proven to be very beneficial to the company as 30% of sales during the last fiscal year were from products that did not exist five years ago
3M is likely to generate enough cash flow to maintain its dividend. 3M has increased its dividend for over 60 years. MMM stock currently yields 5.5%.
Verizon (VZ)
Verizon (NYSE:VZ) is a communication services stock and one of the largest wireless carriers in the country. Wireless contributes three-quarters of all revenues, and broadband and cable services account for about a quarter of sales. The company’s network covers about 300 million people and 98% of the U.S.
On Oct. 24, 2023, Verizon reported earnings results for the third quarter. For the quarter, revenue declined 2.7% to $33.3 billion, but this was in line with expectations. Adjusted EPS of $1.22 was 4 cents more than anticipated. Verizon had postpaid phone net losses of 51,000, but this was an improvement both on year-over-year and sequential basis.
Revenue for the Consumer segment declined 2.3% to $25.3 billion, though wireless service revenue improved 2.9% due to higher average revenue per account. Broadband totaled 434,000 net new customers during the period, the fourth consecutive quarter of at least 400,000 net adds. Wireless retail postpaid phone churn rate remains low at 0.85%.
Verizon reaffirmed guidance for 2023 as well with the company still expecting adjusted EPS of $4.55 to $4.85 for the year. Wireless service revenue is still projected to grow 2.5% to 4.5%. Free cash flow for 2023 is projected to be $18 billion, $1 billion higher than previously expected.
The strong free cash flow of the company fuels its high dividend payout. Verizon has increased its dividend for 19 consecutive years. VZ stock currently yields 6.6%.
International Business Machines (IBM)
International Business Machines (NYSE:IBM) is a global information technology company that provides integrated enterprise solutions for software, hardware and services. IBM’s focus is running mission critical systems for large, multi-national customers and governments. IBM typically provides end-to-end solutions. The company now has four business segments: Software, Consulting, Infrastructure and Financing. IBM had annual revenue of about $60.5 billion in 2022.
IBM reported solid results for Q3 2023 on Oct. 25, 2023. Companywide revenue rose 3.5% while diluted adjusted earnings per share climbed 22% on a year-over-year basis. Also, IBM’s revenue and earnings are being impacted by the strong U.S. dollar causing a 1.1% headwind. Software revenue increased 6.3% in comparable quarters due to 7% growth in Hybrid Platform and Solutions and a 5% increase in Transaction Processing. Revenue was up 8% for RedHat, 13% for Automation, 6% for Data and AI, and -3% for Security.
The firm launched watsonx for generative AI and machine learning. Consulting revenue increased 5% due to a 5% rise in Business Transformation, a 1% increase in Technology Consulting, and 7% growth in Application Operations. The book-to-bill ratio is a healthy 1.15x.
Future growth will be driven largely by acquisitions. So far in 2023, it has announced the purchase of StepZen and NS1. IBM has acquired 30 companies under the present CEO. Also, IBM is reinforcing its AI offerings as seen by the Apptio acquisition. IBM forecasts revenue growth in the mid-single-digits and free cash flow of about $10.5 billion in 2023.
IBM has increased its dividend for 29 consecutive years, qualifying it as a Dividend Aristocrat. The 2023 dividend payout ratio of approximately 70% indicates a secure dividend. IBM stock yields 4.1%.
On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
