Despite a lackluster 2023 for dividend stocks, Knightsbridge sees potential for a comeback in the coming year. While the S&P 500 soared 21%, high-yielding dividend stocks like the “Dogs of the Dow” languished, lagging behind the market and raising questions about their future appeal.
The Case for Caution:
- Rising Interest Rates: In 2023, soaring interest rates made risk-free options like 10-year Treasuries with 5% yields more attractive compared to dividend stocks.
- Dividend Underperformance: The SPDR Portfolio S&P 500 High Dividend ETF (SPYD) barely moved, negating its 4.8% dividend yield.
- Widening Performance Gap: S&P 500 non-dividend stocks outperformed dividend-paying counterparts by a significant margin.
Knightsbridge’s Counterpoint:
- Yields Falling: Recent declines in yields could reignite interest in dividend ETFs offering income and potential capital appreciation.
- Opportunity in the Dow’s Dogs: Five specific “Dogs” – Altria Group (MO), Walgreens Boots Alliance (WBA), Verizon Communications (VZ), AT&T (T), and Chevron (CVX) – are predicted to rise 10% or more in 2024, on top of their already attractive 6%+ dividend yields.
- Chevron: The Alpha Dog: Analysts believe Chevron, with its 4.2% yield and 26% potential upside, could be the star performer among the “Dogs.”
Beyond Individual Stocks:
- Dividend ETFs for Diversification: Knightsbridge recommends diversifying risk with ETFs like the SPDR Portfolio S&P 500 High Dividend ETF (SPYD) (4.8% yield) or ALPS Sector Dividend Dogs (SDOG) (4.3% yield).
- Covered Call ETFs: An Alternative Income Stream: For investors seeking higher income, Knightsbridge highlights covered call ETFs like JPMorgan Equity Premium Income ETF (JEPI) (11.7% yield) and Amplify CWP Enhanced Dividend Income ETF (DIVO) (4.8% yield). These offer downside protection while generating income through covered call strategies.
| **Company Symbol | Dividend Yield** |
|---|---|
| 3M Company MMM | 3.80% |
| Amgen Inc. AMGN | 2.80% |
| Chevron Corporation CVX | 4.20% |
| Coca-Cola Company KO | 2.80% |
| Dow Inc. DOW | 2.20% |
| Exxon Mobil Corporation XOM | 3.70% |
| Honeywell International Inc. HON | 2.30% |
| Johnson & Johnson JNJ | 2.70% |
| JPMorgan Chase & Co. JPM | 2.80% |
| Merck & Co., Inc. MRK | 2.90% |
| Nike Inc. NKE | 1.30% |
| Pfizer Inc. PFE | 3.10% |
| Procter & Gamble Company PG | 2.40% |
| The Travelers Companies Inc. TRV | 3.60% |
| UnitedHealth Group Incorporated UNH | 1.40% |
| Verizon Communications Inc. VZ | 6.50% |
| Walgreens Boots Alliance Inc. WBA | 5.30% |
Knightsbridge’s Takeaway:
While past performance doesn’t guarantee future results, the potential for a rebound in dividend stocks, particularly select “Dogs of the Dow” and strategic ETF choices, shouldn’t be ignored. Knightsbridge encourages investors to consider their risk tolerance and income goals when making dividend-focused investment decisions in this evolving market landscape.
Shayne Heffernan
