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Dogs of the Dow 2023: 5 Dividend Stocks for Income Investors

The start of the year is a good time to add to your existing portfolio or start new positions. A great source to look for ideas is among the Dogs of the Dow. These actions are the most productive of the Dow Jones Industrial Average (DJIA) at the end of the previous year.

The strategy assumes that stocks are temporarily undervalued and therefore returns are high. Additionally, the Dogs of the Dow are blue chip stocks with sustainable growth and an excellent reputation. Therefore, they make good choices for income investors.

We emphasize dividend yield, conservative payout ratio and valuation in our five picks. These five stocks are excellent choices for investors looking for higher yields at a reasonable price to generate dividend income.

Verizon (VZ)

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Verizon (NYSE:VZ) continues to be a consistent theme in our selection due to the combination of a high dividend yield for nearly a decade and significant undervaluation. Few stocks offer both at the same time.

For most of 2022, Verizon has been challenged to grow its retail cellular subscribers. But a recent statement from the Chief Executive Officer (CEO) suggests that the trend may have reversed in 2023. In addition, the company is reducing capital spending and expenses. This is good news, and investors have driven the stock price higher from its lows in response.

Yet the stock is yielding more than 6.5%, well above the five-year average and more than three times the dividend yield of the S&P500. Verizon has been increasing its dividend by about 2% per year for the past 19 years. The dividend is supported by a payout ratio of only around 49%.

Verizon is very cheap, trading at a price-to-earnings (P/E) ratio of just 7.7x, well below the 5- and 10-year ranges. As a result, Verizon is a great choice for investors looking for income at a reasonable price.

Walgreens Boots Alliance (WBA)

Walgreens (WBA) store exterior and sign in Pompano Beach, Florida

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Walgreens Boot Alliance (NASDAQ:WBA) has been listed on the Dogs of the Dow every year since 2020 due to its high and recurring dividend yield. The drugstore retailer has battled weak growth, opioid lawsuits and increased competition. Additionally, the 2015 merger between Walgreens and Boots Alliance caused difficulties.

That said, a new CEO seems to be working better. She also has a vision for expansion in healthcare. Along these lines, VillageMD recently acquired Summit Health for primary care, Shields for specialty care, and CareCentrix for post-acute care. Whether or not this strategy will work will take time to determine, however.

In the meantime, investors are being paid to wait with a yield of around 5.4% backed by a payout ratio of 42%. Walgreens is close to entering Dividend King status with 47 years of increases, but the rate of dividend increases has slowed.

Walgreens is trading at a low earnings multiple of 7.9x, below the 5- and 10-year ranges. However, despite the short-term difficulties, the company is still profitable.

Intel (INTC)

Close up of the Intel (INTC) sign at the entrance to the Intel Museum in Silicon Valley.  Intel is an American multinational and technology company.

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Intel (NASDAQ:INTC) is experiencing one of its worst periods since the dot-com boom between corporate missteps and a changing competitive environment. The company has struggled to scale down its manufacturing lines to 7nm and 4nm, causing them to fall behind Taiwan semiconductor (NYSE:TSM).

Next, ARM-based chips produced by Advanced Micro Devices eat away at Intel’s PC and server market share. Intel designs and manufactures its own chips, while AMD designs and outsources manufacturing to TSMC. Finally, customers are increasingly developing their own chips and outsourcing manufacturing to fabs like TSMC or Samsung.

The result was that shareholders sold Intel shares, and the share price fell to levels not seen in 2014-2015. Simultaneously, the dividend yield climbed to over 5%.

That said, Intel has introduced Sapphire Rapids in its series of Xeon chips for data centers. Next, Intel’s impending launch of 4.7nm Intel manufacturing will make the company’s chips more competitive against AMD’s chips. Finally, Intel is spending tens of billions of dollars to expand its manufacturing services with new factories in Arizona and Ohio.

Intel’s turnaround is still in its early stages and the market hates the company, but strong demand for chips should be a tailwind. With the highest yield in a decade combined with a reasonable payout ratio of 51%, INTC stocks are a solid choice.

International Business Machines (IBM)

IBM sign on office building

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International Business Machinery (NYSE:IBM) is another company that investors love to hate. But the company performed better than its peers in 2022, and the momentum could continue in 2023. IBM began its turnaround in 2019 with the acquisition of Red Hat, moving permanently to hybrid cloud. Subsequently, a new CEO, followed by the separation of the managed infrastructure business into Kyndryl (NYSE:K.D.), refocused the company.

Today, IBM deals with software, consulting and mainframes. The company is a leader in mainframes, hybrid cloud, transaction processing and global consulting. That said, IBM has room to improve revenue growth and margins.

The dividend yield of 4.7% is among the highest of dividend aristocrats, which makes IBM attractive. The company is committed to paying dividends and is one of the highest paying dividend stocks. Also, while the current increases are meager, IBM raises the dividend every year. IBM is undervalued relative to its peers based on the P/E ratio.

Amgen (AMGN)

the Amgen (AMGN) logo on a building during the day

Source: Michael Vi / Shutterstock.com

Amgen’s (NASDAQ:AMGN) the stock price continues its upward trend after some weakness during the Covid-19 pandemic. The company has several blockbuster drugs with billions of dollars in sales. But investors worried about expiring patents and growing competition from biosimilars.

The company has addressed its product portfolio challenges by acquiring the oral immunology drug Otzela to complement Enebrel. Additionally, Amgen pursued a strategy of acquiring small businesses and gaining access to new molecules, compounds and therapies. Since 2021, Amgen has acquired ChemoCentryx, Tenebio and FivePrime Therapeutics in multi-billion dollar deals.

Recently, Amgen announced the nearly $28 billion cash and debt deal for Horizon Therapeutics, expanding the portfolio with blockbuster drug Tepezza, several others with strong sales and pipeline.

Amgen is earning 3.2% and the dividend is growing at a double digit rate. Future growth is supported by a moderate payout ratio of 42%. The stock is probably fairly valued, but a successful acquisition of Horizon could mean future growth.

As of the date of publication, Prakash Kolli held LONG positions at VZ, IBM and AMGN. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines. The author is not a licensed or registered investment adviser or broker/dealer. It does not provide you with individual investment advice. Please consult a licensed investment professional before investing your money.

Prakash Kolli is the founder of the Dividend Power website. He is a self-taught investor and blogger on dividend growth stocks and financial independence. Some of his writing can be found on Seeking Alpha, InvestorPlace, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, FXMag and major financial blogs. He also works as a part-time freelance equity analyst with a leading dividend-paying equity newsletter. He was recently in the top 1.0% and 100 (81 out of over 9,459) financial bloggers tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.


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