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  • Bank of America strategist Stephen Suttmeier says the Dow’s highest-dividend stocks, known on Wall Street as “the dogs of the Dow,” might be a good play for investors in 2021.
  • Suttmeier says the dogs beat the market for five years after the last two recessions. 
  • Those high-yield stocks struggled in 2018 and 2019 as investors prioritized growth above all else.
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Dogged persistence has a way of paying dividends, and Bank of America says that should hold true over the next few years.

One of the simplest high-income plays investors can make is buying the “dogs of the Dow:” the ten highest-yielding components of the Dow Jones Industrial Average. It’s a bet on blue-chip stocks that can pay investors steadily and even handsomely.

But not in the last two years: Stephen Suttmeier, technical research strategist for Bank of America, acknowledged in a recent research note that this traditional approach just endured its roughest stretch in the 21st century.

“After solid returns from 2010-2018, the Dogs of the Dow got fleas,” he said. “2019 and 2020 marked the two worst years for the Dogs relative to the S&P 500 (SPX) going back to 2001.”

But Suttmeier says things have changed in a way that could help the dogs get back on the right foot. He notes that they’ve had some of their strongest runs coming out of recessions, and even with the recent wave of COVID-19 cases, it looks like the economy is heading in the right direction.

After the last two recessions, the dogs went on long runs of outperformance compared to the S&P 500.

If 2020 did indeed mark a big recessionary low like 2002 and 2009, the Dogs of the Dow could once again have their day,” Suttmeier said. “The average annual total returns for the 5-year periods after these big lows were stronger for the Dogs of the Dow.”

He backs up that contention with this chart. In blue is the Dow Jones High Yield Select 10 Index, a proxy for the dogs. The red line is the S&P 500 Total Return Index, which has lagged the high-yielding Dow stocks since the market’s low in late 2002.

Dogs of the Dow

Bank of America says the highest-dividend Dow stocks on have beaten the market since 2002, and they tend to do even better after weak periods like 2018-19.
Bank of America Global Research

The list of “dogs of the Dow” is updated annually as the index’s components change. In 2021, Amgen and Merck replace former Dow constituents ExxonMobil and Pfizer.

The 2021 edition of the dogs are ranked below from lowest to highest based on the upside that is implied by Bank of America’s current price targets. That upside was calculated based on Thursday’s closing prices, and at that time, five of the stocks had double-digit upside in addition to the group’s average dividend yield of 4.1%.