In this article, we discuss dogs of the S&P 500 strategy and its current stock picks. You can skip our detailed analysis of the 'Dogs of the S&P 500' strategy and dividend stocks, and go directly to read 5 Dogs of the S&P 500 stocks.
'Dogs of the S&P 500' is a variation of the 'Dogs of the Dow' strategy applied to the S&P 500 index. It involves selecting the highest dividend-yielding stocks from the S&P 500 as a potential investment strategy. Dividend yield plays an important role when investing in dividend stocks as it represents the annual dividend payout as a percentage of a stock price. Though high-yielding dividend stocks are often considered risky investments, meticulous research of the respective company’s financial health may mitigate risks associated with high yields.
According to analysts' opinions, dividend yields ranging from 3% to 6% are generally considered favorable. This range often indicates a balance between income and potential growth. Companies offering dividend yields in this range typically have stable and sustainable business models that generate consistent profits. In our article, 25 Things Every Dividend Investors Should Know, we mentioned Nuveen’s data which highlighted that dividend growers with modest yields achieved a return on equity of 26.8% in 2022. This outperformed stocks with higher yields above 3%, which had a return on equity of 20.4%.
A significant amount of research has been carried out on the Dogs of the Dow, a strategy that invests in the ten highest-yielding dividend stocks in the Dow Jones Industrial Average (DJIA). The majority of these studies point to the strategy’s tendency to outperform the S&P 500 over long periods. However, the highest-yielding stocks of the S&P 500 saw a substantial boost in performance over the years when pitted against their DJIA counterparts. Columbus State University’s paper, The Dogs of the Dow Strategy Applied to the S&P 500, revealed that high-dividend S&P 500 stocks delivered higher raw returns than both the Dogs of the Dow and the S&P 500 over 18 years (from 2000 to 2017). According to the report, the Sector Dogs, the five highest-yielding dividend stocks of the S&P 500, delivered average monthly returns of 0.960%, compared with 0.749% returns of Dogs of the Dow. The paper also mentioned that Sector Dogs’ buy and hold returns during this period came in at 12.62%, in comparison with a 4.9% return of the S&P 500.
To determine the performance of the highest-yielding S&P 500 stocks, ALPS implemented a variation of the Dogs of the Dow strategy through its Sector Dividend Dogs ETF. In this strategy, the selected the five companies with the highest dividend yields from each of the eleven sectors within the index. In the past three years ending March 31, 2023, the exchange-traded fund delivered a 23.01% return to shareholders, whereas the broader market gained 18.60% during this period. Since its inception in 2012, the fund’s returns came in at 11.46%.
In this article, we will discuss the top dogs of the S&P 500. Some of these include Altria Group, Inc. (NYSE:MO), AT&T Inc. (NYSE:T), and Verizon Communications Inc. (NYSE:VZ).
Dogs of the S&P 500
Wall Street Our Methodology:
For this list, we scanned the list of the S&P 500 companies and picked 10 dividend stocks with the highest dividend yields, as of June 22. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 943 funds as of Q1 2023. The stocks are ranked in ascending order of their dividend yields, as recorded on June 22.
Kinder Morgan, Inc. (NYSE:KMI) is a Texas-based company that owns and controls oil and gas pipelines and terminals. The company reported a strong cash position in the first quarter of 2023 as it generated over $1.33 billion in operating cash flow, compared with $1.08 billion during the same period last year. Its free cash flow for the quarter came in at $826 million, up from $677 million in the prior-year quarter.
On April 19, Kinder Morgan, Inc. (NYSE:KMI) declared a quarterly dividend of $0.2825 per share, having raised it by 1.8%. This marked the company's sixth consecutive year of dividend growth. With a dividend yield of 6.79% as of June 22, KMI is one of the top dogs of the S&P 500. Other dividend stocks in this category include Altria Group, Inc. (NYSE:MO), AT&T Inc. (NYSE:T), and Verizon Communications Inc. (NYSE:VZ).
Barclays maintained an Equal Weight rating on Kinder Morgan, Inc. (NYSE:KMI) in April with a $20 price target, highlighting the company's near-term gas production outlook for 2023.
At the end of Q1 2023, 35 hedge funds in Insider Monkey's database reported having stakes in Kinder Morgan, Inc. (NYSE:KMI), up from 34 in the previous quarter. These stakes have a collective value of over $1.08 billion. With over 26.3 million shares, Orbis Investment Management was the company's leading stakeholder in Q1.
AT&T Inc. (NYSE:T) is an American multinational telecommunications holding company that provides media and technology services and products to its consumers. The company currently pays a quarterly dividend of $0.2775 per share. It is one of the top dogs of the S&P 500 with a dividend yield of 7.11%, as of June 21.
In the first quarter of 2023, AT&T Inc. (NYSE:T) reported revenue of over $30 billion, which showed a 1.4% growth from the same period last year. The company's operating cash flow for the quarter came in at $6.7 billion and its free cash amounted to $1 billion.
In June, Moffett Nathanson upgraded AT&T Inc. (NYSE:T) to Market Perform with a $17 price target, presenting a positive outlook of the company's performance this year.
As of the close of Q1 2023, 58 hedge funds in Insider Monkey's database owned stakes in AT&T Inc. (NYSE:T), up from 55 in the previous quarter. Their collective stake value is over $2.3 billion. Ken Griffin, Cliff Asness, and D. E Shaw were some of the company's leading stakeholders in Q1.
Boston Properties, Inc. (NYSE:BXP) is a Boston-based real estate investment trust company that mainly invests in premier workplaces across the country. On June 20, the company declared a quarterly dividend of $0.98 per share, which was consistent with its previous dividend. The stock has a dividend yield of 7.24%, as of June 22, which makes it one of the top dogs of the S&P 500.
Boston Properties, Inc. (NYSE:BXP) posted an FFO of $1.73, which beat analysts' estimates by $0.05. The company's revenue for the quarter came in at $803.2 million, which saw a 6.5% growth from the same period last year. Its net income attributable to common shareholders came in at roughly $78 million.
In June, Barclays raised its price target on Boston Properties, Inc. (NYSE:BXP) to $58 with an Equal Weight rating on the shares.
According to Insider Monkey's database of Q1 2023, 22 hedge funds owned stakes in Boston Properties, Inc. (NYSE:BXP), compared with 26 in the previous quarter. The collective value of these stakes is roughly $360 million. First Eagle Investment Management was the company's leading stakeholder with over 3.7 million shares.
Verizon Communications Inc. (NYSE:VZ) is a multinational telecommunications company that provides technology, information, and entertainment products and services to its consumers. In the first quarter of 2023, the company reported a net income of $5 billion, which was up 6.5% from the same period last year. The company's operating cash flow and free cash flow for the quarter came in at $8.3 billion and $2.3 billion, respectively.
Cowen appreciated the company's growing consumer momentum in the first quarter of 2023. In view of this, the firm maintained an Outperform rating on the stock in April with a $45 price target.
Verizon Communications Inc. (NYSE:VZ) is included in our list of the dogs of the S&P 500, as the stock has a dividend yield of 7.28%, as of June 22. The company has been growing its dividends for the past 16 years and currently pays a quarterly dividend of $0.6525 per share.
The number of hedge funds tracked by Insider Monkey owning stakes in Verizon Communications Inc. (NYSE:VZ) grew to 59 in Q1 2023, from 56 a quarter earlier. The consolidated value of these stakes is over $1.3 billion.
Lincoln National Corporation (NYSE:LNC) is an American insurance company that operates multiple insurance and investment management businesses. The company currently pays a quarterly dividend of $0.45 per share and has a dividend yield of 7.34%, as of June 22. It is among the dogs of the S&P 500 stocks on our list alongside Altria Group, Inc. (NYSE:MO), AT&T Inc. (NYSE:T), and Verizon Communications Inc. (NYSE:VZ).
In the first quarter of 2023, Lincoln National Corporation (NYSE:LNC) reported revenues of $3.8 billion, down from $4.7 billion in the same period last year. However, the company's annuities deposits of $3.2 billion saw a 17% year-over-year growth.
At the end of Q1 2023, 26 hedge funds in Insider Monkey owned stakes in Lincoln National Corporation (NYSE:LNC), worth collectively over $195.3 million. Among these hedge funds, Ken Griffin's Citadel Investment Group was the company's leading stakeholder in Q1.