These Dividend Dogs are beating the market

 

As the broader market continues to struggle, the Dogs of the Dow strategy remains ahead of the overall market for 2016.

Through the end of trading on February 9, the Dow Jones has lost 8.1% on the year, but the ten stocks in this year’s group of dogs has lost just 3.1%, putting them clearly ahead of the pack.

The same problems that plagued the market during the final phase of 2015 remain in place, most namely uncertainty about China and low oil prices. Until we start to see improvements in either of these areas, the market will remain under pressure.

China closed out 2015 with economic growth of 6.8% during the fourth quarter, and 6.9% for the full year. While most nations would love to have those growth numbers, for a nation as big as China, anything under 7% is cause for alarm.

Oil has tried to rally on multiple occasions over the last few months, but each time the rally was short lived, and prices remain near 12-year lows. Oil has been a major driving force of the overall market, and will likely continue to apply pressure on stocks moving forward.

It has certainly been a rocky market, but investors that bought into the Dogs of the Dow strategy have at least managed to stay ahead of the market, and endured much smaller losses.

Verizon

Verizon (VZ) was down 3.0% when we last checked in this year’s group, but the stock moved sharply higher following an upbeat Q4 earnings report in January, and the position is currently up 11.1% on the year, making it the top-performer of the group. Not only did the company post better-than-expected numbers for both the top and bottom line, it also announced that it added 1.5 million new wireless subscribers during the quarter. The stock is currently just shy of its 52-week high, and should remain a top-performing stock until at least its next earnings report. Verizon has already made its first distribution of the year, which helped boost the return slightly.

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Chart courtesy of www.stockcharts.com

Chevron

Low oil prices have kept the pressure on the entire oil and gas sector, but Chevron (CVX) has actually managed to hold up pretty well over the last month, and the stock is actually trading higher than where it was when we last looked at the group. At our last check-up, the position was down 8.7% on the year, but it has made up a little ground, and is now down just 7.8% on the year. With the 7.8% loss, CVX is actually slightly outperforming the overall Dow Jones for the year. With the stock holding up fairly well while oil has remained under pressure, the sentiment is there for a nice recovery if and when we see oil prices start to gain traction.

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Chart courtesy of www.stockcharts.com

Caterpillar

Heavy machinery maker Caterpillar (CAT) has been dealing with incredibly difficult times, as slowing economic growth in China, and weakness in the commodities market havehit the company hard. Last year was a disaster for the stock, which lost 25.8%, but 2016 is proving to be better, and while the stock is down 5.9%, its performance is better than the overall market. The company posted better-than-expected earnings at the end of January, which gave the stock a nice boost, while also giving investors a reason to celebrate. While the current sentiment is cautiously optimistic, there are still a lot of headwinds that the company has to face, and the company’s underlying business remains a concern. It is encouraging to see CAT outperforming the market, but this position could easily resume its downward momentum and trail the market in a short period of time. Gold prices have improved, but until we see meaningful improvements in commodities as a whole, CAT will remain a concern.

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Chart courtesy of www.stockcharts.com

International Business Machines

International Business Machines (IBM) was down 4.0% when we last took a look at the group, and since then the situation has deteriorated even further. IBM is trading lower with the overall technology sector, and is now down 9.8% on the year, trailing the overall market. The company did post better-than-expected fourth-quarter results in January, which gave the stock a boost, but until strength returns to the technology sector as a whole, it will be difficult for IBM to make a move back towards break-even for the year.

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Chart courtesy of www.stockcharts.com

Exxon Mobil

The big surprise in this year’s group so far has been oil and gas giant Exxon Mobil (XOM). Despite the pressure that remains on oil, XOM has actually managed to trade higher on the year. Shares of XOM stock are currently up 2.7% on the year, making the stock this year’s fourth-best performer in our group. As I noted when we last discussed the group, XOM had fallen to a rather low valuation. The P/E was 15.8 at the time, which was well below the industry average, and created a good opportunity for shares to move higher on any signs of strength. The stock got just such a sign, with the company topping analyst estimates for its fourth-quarter at the start of February, that catapulted the stock higher and back into positive territory for the year. While the gain is very encouraging, investors should remain cautious, as weak oil prices can still pull the stock lower depending on how long they remain at current levels, or worse yet if they move significantly lower. As it stands, XOM is providing solid support to our group, and could continue to move higher if we see oil prices start to firm.

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Chart courtesy of www.stockcharts.com

Pfizer

The pharmaceutical sector has been under serious pressure in recent months, and as a result shares of Pfizer (PFE) have fallen near their 52-week low. The stock is currently down 6.9% on the year, and will likely struggle to get back to break-even in the near term. Drug costs are going to be a major talking point in the current presidential campaigns, and each time the discussion comes up regarding prescription costs, the drug sector will take a hit. PFE has a P/E of 23, which is not low enough just yet to suggest the stock has hit a bottom, and we could see more losses before shares are able to form a bottom and start trending higher.

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Chart courtesy of www.stockcharts.com

Merck

Merck (MRK) has been trending lower with the overall healthcare sector in recent months, and the position is currently down 6.9% on the year, which is actually slightly better than the overall market. The stock now has a P/E of 31.5, which is higher than the industry average 23.0, and could lead to additional downside pressure. The company has already reported earnings, topping the consensus for earnings, but falling a little short in the revenue department. The mixed results were released on February 3, and Wall Street pushed the stock slightly lower on the news, but it has already made back most of the initial post-earnings loss. Rising healthcare costs, and in particular drug costs, will be a major talking point through the year by this year’s presidential candidates, which could keep pressure on the sector. If stability returns to the broader market, MRK could erase some of its recent losses, but a lot is going to depend on political pressure that could exist through the remainder of the year.

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Chart courtesy of www.stockcharts.com

Procter & Gamble

Procter & Gamble (PG) is one of the better performing stocks in the group, with shares rising 4.1% on the year. I am very bullish on the stock, and in the consumer staples sector in general. Consumer staples offer investors a nice safe haven when concerns over the overall economy start to negatively impact the broader market. Procter & Gamble continues to face currency headwinds, but the company’s reputation, solid dividend program, and impressive stable of brand names should keep strength under the stock moving forward even if the broader market struggles. The stock is approaching its 52-week high, and has a P/E of 28, so I would not be surprised to see shares start to flatten out, but as the company has already made it through earnings season with better than expected results the stock should continue to outpace the market in the near term.

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Chart courtesy of www.stockcharts.com

Wal-Mart

After a disastrous 2015, retail giant Wal-Mart (WMT) is once again showing signs of life. The struggling retailer is the second best performing stock in our group, with shares appreciating 7.4% on the year. Even with the recent gains, the stock appears to have some value, with a P/E of just 14.0. Wall Street appears to have taken a slightly more bullish view on the company, but the real test will come on February 18 when it reports its fourth-quarter numbers. Analysts forecast earnings of $1.46 per share, down from $1.61 during the same period last year. The earnings dip has already been priced into the stock, so if the company is able to outpace the consensus, the stock will manage to build on its recent momentum even with the year over year earnings drop.

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Chart courtesy of www.stockcharts.com

Cisco Systems

Cisco Systems (CSCO) is currently the worst performing stock in the group. Even when accounting for the company’s first dividend on the year, the position is down 15.8% and trading at its 52-week low. The technology sector has been hit hard in the recent market sell off, with concerns over the impact slowing economic growth around the globe will have on technology spending. The company will get its chance to impress Wall Street and turn sentiment in its favor when it posts its fiscal second-quarter numbers after the market close on February 10. Analysts forecast earnings of $0.54 per share, basically in-line with the $0.53 it earned during the same period last year. CSCO has been beaten up in recent months, but so far the company really has done nothing to give analysts a reason to drive shares so low. The company does have a lot of Chinese exposure, and that exposure could be put on display in the upcoming earnings report. Barring a big earnings miss I see little downside risk, and a lot of upside potential for the stock which now has a P/E of just 12.

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Chart courtesy of www.stockcharts.com

Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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