One of the best ways to spot opportunities in strong buy Dow stocks is with the Dogs of the Dow strategy. At the end of every year, you simply buy the top 10 worst-performing stocks on the Dow, which also have respectable dividends. Over the year, you collect yield and hopefully benefit from Dow stock recoveries. Usually, the strategy works out well.
For example, in 2023, the top Dogs returned 10.4% compared to the Dow Jones average return of 14.4%. In 2022, the Dogs returned 2.2%, outperforming the Dow’s -8.8%. In 2021, the Dogs returned 25.3%, while the Dow jumped about 21%. While 2020 wasn’t great for the Dogs, most other years have done very well. In 2019, the Dogs were up 20%. In 2018, they were up about 1% but still beat the Dow, which fell close to 6%.
Here are three strong buy Dow stocks you may want to consider, even though we’re now in February.
3M (MMM)
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With a yield of 6.48%, 3M (NYSE:MMM) fell about 32% in 2023—all thanks to poor earnings and guidance. But don’t write it off just yet. For one, most of the negativity has been priced into the stock. Two, 3M just raised its dividend by a penny to $1.51, payable March 12 to shareholders of record as of Feb. 16. Three, at about 10x earnings, with a yield above 6%, investors may want to use the fear as an opportunity.
Granted, there are some negatives with 3M. It may have beaten earnings, but it missed on revenue. And guidance was short of expectations. Full-year numbers were awful. Profitability even took a hit from legal issues with the earplugs. But there is some good news for this Dividend King. According to Motley Fool contributor Eric Volkman, its free flow was 32% year over year in 2023 to about $5.1 billion. That was enough to cover dividend payouts for the year.
And despite arguments for a dividend cut, I don’t think that’ll happen—if at all, for some time. 3M is one of the top strong buy Dow stocks to buy and hold long term.
Cisco Systems (CSCO)
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With a yield of 3.12%, Cisco Systems (NASDAQ:CSCO) was up about 9% in 2023. It made the list of the top Dogs after gapping lower on news of a slowdown in orders. However, with the negativity now priced in, there’s an opportunity to buy cheaply.
Helping analysts at Evercore ISI maintain an outperform rating on the CSCO stock, with a $55 price target. The firm noted, “While the near-term outlook for Cisco might be challenging due to the weakness in enterprise networking, the company’s emphasis on cloud and AI opportunities could lend some support,” as quoted by biedexmarkets.com.
Even better, as biedexmarkets.com contributor Yiannis Zourmpanos noted, “Returning $2.8 billion to shareholders through cash dividends and share repurchases reflects Cisco’s focus on generating value for investors.”
He added, “Cisco has an edge in the AI infrastructure space. There is a projection of over $1 billion in orders for AI infrastructure from major cloud providers in fiscal 2025, which suggests its focus on high-growth areas that, in turn, propel its market valuation.”
Chevron (CVX)
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There’s also Chevron (NYSE:CVX), which has been bouncing with oil prices. Over the last year, the stock slipped about 8%, with crude oil down 10%—all thanks to supply-demand issues and geopolitical headaches. However, oil could push higher again in the coming months with summer driving season nearing, U.S. production expected to flatline for the year, and news that Israel rejected a ceasefire with Hamas. There’s also Iran.
While we wait for oil and CVX to recover, we can collect a CVX yield of 4.23%. In addition, the company expects its free cash flow to grow at an average annual 10% rate through 2027, which should allow it to increase its dividends and buybacks, as Motley Fool contributor Matthew DiLallo noted.
We also have to consider that CVX agreed to buy Hess (NYSE:HES), which should close mid-year. That deal could fuel significant upside in its free cash flow. In short, you may want to take advantage of the current CVX price.
On the date of publication, Ian Cooper did not hold (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the biedexmarkets.com.com Publishing Guidelines.
