January 17, 2025 • 38 mins
Dogs of the Dow – In this episode, Chris Boyd and Team AMR look into the Dogs of the Dow
strategy where an investor annually invests in the ten stocks with the highest dividend yield
listed on the Dow Jones Average. Senior Portfolio Manager Brian Regan offers commentary of
why this strategy is not the best option for investors who wish to own individual stocks. The
conversation includes dialogue about investing for value versus growth. Chris Boyd and Brian
share their thoughts on preferred methods of evaluating and investing in stocks.
For more information or to reach Chris Boyd, Russ Ball or Jeff Perry, click the following link:
https://www.wealthenhancement.com/s/advisor-teams/amr
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to something more with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president, financial advisor at wealth
enhancement group.
One of the nation's largest registered investment advisors.
We call it something more because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome everybody to another episode of something more
with Chris Boyd.
I'm Chris Boyd.
I'm here with members of our team from
the AMR team at wealth enhancement group.
(00:42):
Uh, Russ Ball is in the studio with
me.
Jeff Perry is in Florida and Brian Regan
is in Boston.
So thank you all for being here.
Uh, our topic today is to discuss the
dogs of the Dow.
I've run across this a couple of times
recently after not having, uh, had exposure to
(01:03):
the dogs of the Dow for, I don't
know, it's been, it's been a long time
since this came across my, my radar, but,
uh, recently I've had a client who had
this position as part of their portfolio and,
um, I've, I've come across an article and
a couple of things where people were talking
about the dogs of the Dow.
(01:25):
So now, uh, typically the, what maybe Brian,
you want to explain for our listeners, what
the dogs of the Dow is before we,
uh, I want to dive into some of
the, uh, the impact of a defined portfolio,
but, uh, in a unit investment trust, but
tell us a little bit about what is
the dogs of the Dow?
Sure.
Uh, thanks for having me today, guys.
(01:46):
It's been a while.
It's always fun to do this.
Um, so the dogs of the Dow is
you take the, the 10 highest yielding stocks
in the Dow Jones industrial average, which has
30 stocks in it, um, and that you
make that your portfolio for the year.
Uh, that's, that's essentially what it is.
The idea is if it has a high
yield, if it's in a blue chip index,
like the Dow Jones, um, then, uh, you
(02:08):
know, that it might be a good indication
of value.
Um, so that's, that's the idea.
Yeah.
So they're presumably, these are quality companies generally,
by virtue of being in the Dow Jones
industrial average.
And then, um, you're taking the 10 best
income.
So people who might be looking for a
good yield, we can, we're going to talk
(02:29):
about that.
Let me come back to this.
Uh, uh, some of the virtues and merits
or, or not of this as an investment
strategy, let's talk about how this is often
acquired.
Uh, oftentimes the way people obtain this, it's
sold to them by a financial advisor who,
uh, is selling a unit investment trust, a
(02:51):
unit investment trust is a, uh, a bundle,
a portfolio that you can buy now it,
uh, it's an investment product, uh, oftentimes it's
sold by commission, uh, though not always, but
generally, um, and.
Essentially, uh, it doesn't have to be as
limited as 10 stocks.
It can be something else, some other theme
(03:13):
that drives the selection, but it is a
portfolio that is retained for a specific period
of time.
Off, as you mentioned, the dogs of the
Dow, the theory is often for 12 months.
Um, the, a unit investment trust often will
last for about 15 months, sometimes even longer,
more like around three years.
So depending on the product you might select,
(03:35):
um, I generally think there are other products
in today's world that I would utilize as
a way to invest.
Uh, by and large, um, uh, defined portfolio
is something I'm going to buy in January,
but there's no, um, Shane, excuse me.
(03:55):
There's no change in the portfolio in any
way over the course of the year.
So there's no window, there's no opportunity for
assessment or revision.
Uh, it's either you own the bundle or
you don't, that's essentially what a defined portfolio
is.
Um, you could argue, well, isn't that true
with an ETF or, um, uh, mutual fund.
(04:19):
And in some instances that may be true,
but oftentimes there is active management and we
can come back and talk about that, uh,
the, the benefits and drawbacks of that.
But in any case, a defined portfolio, a
unit investment trust is usually how people acquire
the dogs of the Dow.
You could certainly do it yourself with the
purchase.
(04:40):
Uh, the question then becomes, are they held
in equal weight?
Are they held in cap weight?
Uh, what's, what's the weighting mechanism you use?
Is it somehow arranged by yield?
So these are things you might not know.
And, um, that's why people would typically acquire
it and the form of a, a packaged
product.
Um, I generally am not a fan of
(05:02):
unit investment trusts or defined portfolios.
Anybody else want to weigh in on that
question right out of the gate?
Jeff, Brian, what do you think?
Well, I don't really understand the point of
a defined portfolio period ever, um, because things
change.
I mean, if we just look at the
dogs of the Dow in 2024, for example,
(05:24):
uh, Walgreens Boots Alliance was in, uh, was
in the Dow Jones at the beginning of
the year and it fell out during the
year.
So, you know, just from that mechanism, you
know, you're not even holding true to your
investment strategy is, is, is, you know, uh,
not great as investment strategy, I think this
is.
We're not even holding true to it.
Um, just because we're in a, you know,
a defined position from, from the very beginning.
(05:46):
Uh, I believe that you, we should, uh,
research, research our stocks, but also, uh, before
we buy them, but also monitor them for,
for changes in business model, changes in price,
um, et cetera, et cetera.
There's lots of things that could, uh, change
the value proposition of a, of an individual
stock.
Well said I I'm in complete agreement.
Jeff, did you want to add to that
in any way?
(06:07):
No, I'm not, I'm not a proponent of
it.
It's, uh, the history of the dogs of
the Dow and that's when you would buy
those 10 stocks on the first trading day
of the year with the highest yield and
keep them, right?
You don't, you don't take them out.
If they fall out of the highest 10
dividends, you keep them.
So the old, that's right.
The, the, in this issue though, if, if
(06:28):
you're having the dogs of the Dow and
one, the position falls out of the Dow,
what do you do?
It's a, uh, is it now you, you
replace that position or, yeah.
I mean, I guess you keep it, right.
I mean, the idea is that you keep
it the time in the market and that's
somehow reflecting.
I mean, it could, it could go out
of the top 10 dividend payers and stay
(06:48):
in the Dow because as a price appreciation,
right, or a dividend decrease, I mean, if
I'm going to, if I'm going to try
to find a benefit of it, I like
things that are, uh, have a little turnover.
I don't want, I have, I have more
selling stocks because when you sell a stock,
it's, uh, you know, it can mean one
of a few things.
It could mean that the company has gone
(07:08):
South.
Uh, you know, the business model is no
longer intact.
The reason why you bought it is no
longer there.
Uh, or, you know, maybe it, uh, the
price appreciated a whole lot and, uh, you're
selling a company that you really like just
because it's gotten too expensive.
Um, you know, there's usually not a lot
of great reasons to be selling a stock.
You usually want to be holding it for,
for a really, really long time and get
those compounded returns.
(07:29):
So from that aspect of it, it might
hold people to a strategy who might otherwise
have trouble with that.
I like that idea.
I don't necessarily love the execution through, uh,
the strategy of the dogs of the DAO.
I would argue that, um, the, the place
for, uh, defined portfolios, unit investment trust is,
(07:51):
is largely a by-product of a gone
by era.
Uh, this is a product that's, you know,
designed to be, uh, uh, maybe a stockbroker
sold.
Uh, you know, it's a product sale, uh,
where a commission is earned.
Uh, I just think of that as something
that, you know, today we want to design
(08:12):
a portfolio.
We want to have some ongoing, uh, control
of that.
And, uh, we're not just pushing a product
that, you know, that this would, I think
is more of that, uh, experience that, um,
that era of, uh, experience.
Chris for, uh, for our listeners.
(08:33):
Can I take a second and just tell
the listeners who they are right now or
who they are for 25?
Sure.
Good idea.
Might be helpful.
So the 10 stocks with the highest dividend
rate in the Dow are Verizon, Chevron, Amgen,
Johnson and Johnson, Merck, Coca-Cola, IBM, Cisco,
(08:56):
McDonald's and Procter and Gamble.
So, I mean, a lot of names people
know.
Um, let's, let's talk about just the, uh,
the concept of one of the things that
the dogs of the Dow implies is the,
uh, investment approach of investing for dividend.
(09:17):
And, uh, is that meritorious or not?
Um, it's very common.
It's very common.
And there's some attractive features for people who
particularly who are in maybe own, uh, names,
stocks, or a fund that they could just
retain and draw cashflow from.
(09:39):
And that sounds appealing.
Right.
Uh, but that's not really always the way
we encourage investors to think.
I'm going to let Brian tackle this, uh,
the idea of income investing versus total return
investing.
It's not the first time we've talked about
it, but I think it's worth, uh, revisiting
as a topic.
Yeah.
Before I go on my normal speech here
(10:01):
that you guys are all familiar with.
I Chris, I thought you said something interesting
that relates to this.
He said, commission products are, uh, you know,
time of a bygone era.
Uh, but so is dividend investing.
You know, there was a time probably, probably
prior to 1950 where the dividend, uh, on
an index like Dow Jones would almost always
be higher than a treasury rate, for example.
(10:23):
Um, and the reason for that is because
stocks are, um, uh, more risky than, than,
than fixed, uh, you know, uh, treasury treasury
bond, you know, so they should require a
higher rate of return.
Um, and in those days, you know, a
lot of the industry was based on, uh,
returning share returning cash to shareholders through, uh,
(10:45):
dividends.
Today we do a lot of that through
share buyback and there's a lot more emphasis
on, uh, research and development and capital expenditures,
um, than there might've been prior to that
time.
So now the emphasis is on and the
type of businesses that.
Comprised the economy.
(11:06):
There's been some evolution of that as well.
And that may be part of why, right?
I mean, to say the least, right.
Uh, before 1995, we were bricks and mortar
economy, and now we're a much more of
a bites and bits economy.
Uh, and that has, uh, reshaped, uh, a
lot of the ways that we should be
thinking about investing.
Uh, if you look at, uh, margins on
the S and P 500, for example, from
(11:28):
that time, we went from 6% in
1995 to almost 13% today, uh, that
is indicative of, uh, of software eating the
world.
Um, you know, margins on software are much
greater than, uh, you know, you'll get, um,
from, from selling, uh, items through, through Walmart
at a discount.
So, uh, you know, that's just one example
(11:48):
of, of how, how the economies change and,
and how we need to think about that.
But in addition to that, the reason why
we don't, you know, we, we buybacks were
far less common than they are now.
Uh, buybacks are a way of returning, uh,
uh, capital to shareholders.
Uh, that's more tax efficient than dividends.
And it often gets overlooked, especially when people
are concentrating on dividend yield.
(12:09):
I, it doesn't say anything about the buyback
yield here.
Uh, part of that is good reason.
Um, the buyback is, uh, often temporary, um,
where the dividend is often more consistent, uh,
but not all the time.
And that's important, especially when you're looking at,
uh, some of these very, very high dividend
paying stocks.
Uh, sometimes there have very, very high dividend
(12:30):
yields because the, the dividends going to be
cut.
Um, so that, that, you know, that kind
of leads me into the four things that
you can do with a company can do
with its earnings, right?
Uh, it could pay down debt.
It can buy back shares.
It can reinvest in the business or it
can pay a dividend.
Uh, and for each, uh, different type of
business, uh, uh, different part of the maturity
(12:51):
cycle, uh, different options might be appropriate, right?
If they have, uh, if it's a new
growing company, it might be better for them
to reinvest in the business and get a
high return on, on capital.
If it's a more mature business, uh, you
know, like say Coca-Cola, which is here
on the, in the dogs of the Dow,
it might make sense to pay a, pay
a larger dividend.
Um, but that's, uh, you know, company specific
(13:13):
and it doesn't necessarily mean that one is,
one is better than the other.
If you have a really highly indebted company,
uh, that is trading at a very, very
low valuation because of its prospects of possible
bankruptcy or lack of funding, and then it
gets a lot of funding, even if it's
through the equity market, you might see that
stock go up because the reason why the
(13:33):
valuation was depressed was because of the heavy
debt load.
So, um, a lot of how we evaluate
stocks, you know, it's too simple to look
at the dividend yield and say it's a
good value.
Uh, you need to look at the cash
flows, the growth and what they're doing with
those cash flows and whether that business model
is going to continue well into the future
or if it's, you know, a flash in
the pan.
(13:56):
So I think, you know, we, we have
said over and over again to our listeners
that as much as sometimes it can be
attractive to think in terms of buying, uh,
on the basis of dividends, very often we
might be taking on risk.
We don't recognize, um, the quality of the
(14:17):
company, uh, that has a very high dividend,
maybe at risk, right?
There may be added risk there.
And there may be some concern of the
future earning capabilities, Brian, and you've talked about
in many instances with clients, uh, examples of
a high paying dividend, uh, company, but it's
(14:37):
funding their dividend through a dilution of share
value.
Uh, there can be other considerations that can
be problematic, right?
So we often see instances where, uh, yield
is as much as it can appear to
be attractive to the investor.
They actually be a warning sign.
Sometimes it may not be as appealing as
(14:59):
it might seem.
Um, and that can be true with bonds
as well as stocks that can be more
risk when it comes to higher yield, um,
comments.
Yeah.
I mean, as you guys know, sometimes I
struggle with being diplomatic with my speech, uh,
and I've often called those types of stocks.
(15:19):
I've often called those types of stocks that
Chris has mentioned as Ponzi schemes, which may
or may not be fair, but, um, you
know, you'll see that they'll issue shares and
then increase their dividend at the same time,
which, uh, you know, you're basically, um, you
know, robbing Peter to pay Paul, uh, which
doesn't make a whole lot of sense to
me.
It's not, it's not very common, uh, but
it certainly happens.
(15:40):
Uh, and I, you know, I, if anybody
wants to contest me on that, I have
a couple of stocks in mind that I
don't necessarily, um, you know, aim right now.
Yeah.
But even, uh, less nefariously, right?
Like Verizon is the highest yielding stock on
this list at 6.82%. Right.
Uh, we all are well aware of Verizon.
(16:00):
We're well aware of the brand.
I'm sure, I'm sure most of us, if
not all of us pay a bill to
Verizon.
Um, so, you know, it's, it's very commonly
thought of as, um, you know, a, a
relatively low risk staple, which, you know, I
think it is.
If you, if you look at the financial
statements, you know, the, there's no growth whatsoever.
(16:21):
Uh, there's not a whole lot of decline
either.
Uh, there's, there's marginal decline and there's marginal
risk, but on the whole, I would say
it's, um, you know, the revenue growth is
flat.
So the revenue growth is flat and we
get a yield of 6.82%. What's your
reasonable guess on what your return is going
to be on this, on this stock, all
things equal.
(16:41):
My guess would be 6.82%, right?
You're not, the company's not growing.
Um, and you know, you, you, you're getting
6.82% in the dividend.
You know, you're only going to get the
income.
You're not going to get much price appreciation.
Now, um, yields could fall and that could
lead to price appreciation.
Um, you know, they, they could restructure their
debt, which they have a whole lot of,
(17:02):
which is part of the reason why it's
the press stock.
Um, they are buying, uh, a competitor, uh,
that could go well, but it probably won't.
Um, and I'm not saying that that is
disparagingly to Verizon.
Statistically, most of these large acquisitions do not
work.
So we have a highly indebted company that's
getting more into debt by a competitor that's
(17:23):
already not growing very much.
Um, you know, to, you're, you're taking a
good amount of risk to get that 6
.82%. Now take, um, you know, the S
&P 500, for example, that's average 14 to
15% over the last decade, uh, that
doesn't match up very nicely.
Uh, and if you think that's an unfair
comparison, because you might recognize that, you know,
(17:46):
the S&P 500 might have, uh, things
in it that aren't necessarily staples, then you
can look at the high yield bond market,
which you could probably get close to a
7% yield in today, maybe, maybe, you
know, six and a half, something like that
on average.
Um, so I can actually go down in
the capital structure, take less risk, diversify my
bond portfolio and get a similar yield.
(18:07):
Um, that is a better prospect to me.
And that's why, you know, I don't think,
uh, Verizon, despite its high yield shows, you
know, significant amounts of quote unquote value, uh,
which I think a lot of people would,
would, uh, bucket this as a quote unquote
value stock.
Brian, are there any other names in the,
uh, the dogs of the Dow list that
(18:28):
you would, um, want to talk about that
you'd look at and say, oh, well, you
know, there's things out there.
Yeah.
Well, I love consistency and growth as you
guys know.
Right.
So if you look down this list and
I'll repeat it for everybody, Verizon, Chevron, Amjon,
Johnson and Johnson, Mark, Coca-Cola, IBM, Cisco,
(18:48):
McDonald's, and Procter and Gamble.
Um, that's the 2025 list.
Do any of those scream to you that
they're going to have any growth in the
future?
To me, they don't.
Yeah.
I mean, not a single one.
Um, you know, Merck's biggest drug is Keytruda.
Uh, it's one of the best selling drugs
of all time.
It's a cancer and, uh, it's a cancer
(19:09):
therapy.
Uh, but my understanding is part of the
reason why Merck is trading down is that
the patent is coming up relatively soon, which
means that you will get, uh, and I
also think it's part of the, on the
Medicare list and the negotiated prices.
Um, so, you know, for those two reasons,
the, the optimism around that drug might not
(19:29):
be where you might imagine it to be
for one of the best selling drugs of
all time.
Uh, Chevron is an oil and gas major.
It's very, very highly cyclical.
It might grow for a little bit, but
we are, we know that cyclical is not
consistent.
Um, so it's not going to get up,
you know, a nice valuation for that reason.
Um, you know, McDonald's is, it's interesting.
(19:51):
Uh, there's been times when I've thought about
pulling the trigger there.
Uh, there's certainly, it's certainly consistent.
Um, you know, they've had some interesting history
with their CEOs, uh, too much turnover for,
for my, for my taste, uh, which is
part of the reason why we stayed away.
Procter and Gamble, again, very consistent, but you're
probably only looking at three, 4% growth
(20:11):
trades at over 30 times earnings.
The last time I checked, I'm not, through
some, uh, uh, revisions and, uh, they've had
some iterations.
Anything, anything interesting happening there?
I mean, it's been a while since I
did a deep dive on IBM, but to
me, they should be, they should be able
(20:32):
to come up with something, you know, that,
that could be interesting because if you think
about we're in the age of artificial intelligence
here, right.
And who came up with Watson?
Does anybody ever watch Watson on?
Yeah.
Um, I, I was always amazed at how
that kind of disappeared into, you know, nothingness
and never really found any, um, pretty common
in the business, in the business cycle, development
(20:53):
cycle, right?
The first to have the idea isn't usually
the one who makes all the money.
Right.
You know, it's like that Gartner hype cycle
thing.
Have you ever seen that chart?
So it's pretty interesting, interesting chart.
I like to lay it over the.com
boom.
I think that's, you know, fascinating.
I don't get much activity on my MySpace
account anymore.
I don't know.
Right.
(21:14):
I mean, there's a lot of things like
that.
And now, you know, Cisco, one of the
interesting things about this, and I was actually
talking about this, um, over this past weekend
with somebody, uh, you know, I was basically
asked, like, can a stock go down because
it's priced too high?
And I go, do you know that Cisco
has never made its 2000 high again in
the last 25 years, despite it's, you know,
(21:35):
continue to grow, uh, and be a viable
organization.
So, um, there's nothing here that I'm excited
about.
Uh, there's nothing here that I own anymore,
you know, for disclosure.
Um, so, you know, take that for what
it is, but you know, the dogs of
the Dow, uh, in 2024, if I'm looking
at this article from, uh, investing.com only
(21:56):
did 2.5, 3% in 2024.
Um, I don't know, that's not too impressive
in a, in a year with the S
&P 500 to 25%.
So, um, you know, that's kind of my
take on, on these stocks.
They're, they're kind of old, they're mature.
Um, they might, uh, they're, they're cyclical.
Um, you know, they might surprise you, but,
(22:18):
uh, I, I wouldn't, they don't, they don't
check my boxes of consistency and growth.
I don't disagree with anything Brian's saying.
Um, but I do, I, I do have
a question for Chris and Brian here.
So I think one of the reasons that,
uh, the dogs of the Dow maybe less
than used to be, but is attractive to
people because they want to own a significant
(22:40):
number of investors, savers want to own individual
stocks.
They'd like owning individual stocks.
Um, and how can they do that?
Are they just going to randomly pick companies
that they know and do a little research
and buy them individually?
This is a strategy that at least has
a theory behind it.
It's in companies that are, you know, known
(23:01):
and there's information available about it, I think
that's the attractiveness to some people to maybe
employee, uh, dogs of the Dow strategy.
And they, because they want to own individual
stocks and they really don't know how to
approach it.
Um, if you have a client framework, if
you have a client that comes in and
says, I'd love, maybe they have a portfolio
that they're bringing in and it's individual stocks
(23:23):
and they want to own them, what's, what's
the best advice for people who, you know,
maybe have the assets that they can afford
the risk of owning some individual stocks.
How, how should they approach that?
Do you want to take that Chris?
You want me to run with it?
Yeah, go for it.
I'm going to let you.
Oh, well, you know, I, I, uh, we
(23:43):
have a portfolio of stocks.
It's, it's between, uh, you know, 30 and
40 stocks.
It rarely ever gets as high as 40
stocks because we like to keep it concentrated.
Uh, why do we like to keep it
concentrated?
There's not a ton of stocks that, uh,
we love.
Um, and we want to have good allocations
to, to the stocks that, uh, we really
like.
So, you know, I think my, my first
(24:04):
thought on this, uh, you know, find somebody
that you trust, uh, to, uh, invest, uh,
logically in a, in a more concentrated portfolio,
because if you're not going to do a
more concentrated portfolio, you might as well, why
do we diversify through it, through an ETF?
That's, that's my position.
You're probably not going to perform.
Uh, one of the things about the dogs
and the Dow is it's concentrated, right?
It's only, it's only 10 stocks.
I mean, it's not that it's not the
(24:25):
10 stocks that I would pick, but I
would say it checks those boxes.
Um, the second thing that you need to
do when you're looking at, uh, individual stocks
is make sure you're diversified.
I could argue that the dogs, the Dow
isn't extremely widely diversified.
It's diversified enough.
You know, there's drug stocks, there's some tech
stocks, but they're kind of old, old tech
stocks.
(24:45):
Uh, there's a material stock.
Um, you know, it's, it's fine.
Kind of a enough, enough, uh, there's consumer
staples.
There's kind of enough, uh, diversification.
Um, what, what the dogs, the Dow is
missing is growth, right?
We, we want to find, if I'm going
to pick on one thing that I really
think we want to find business models that
(25:06):
are going to continue to grow well into
the future.
Um, and that's hard to find.
It's really easy to find companies that have
grown recently.
Uh, they get a lot of play on
CNBC.
Usually their stock market, uh, stock prices are
doing really, really well.
Um, and there can be very tempting to
buy.
Uh, it's really hard to find stocks that,
(25:26):
uh, are going to grow consistently for, for
a long time.
And sometimes, and this is a good thing.
Sometimes they're in very boring sectors.
Sometimes they're in exciting sectors.
And the good thing about this is that's
a great way that we can get diversification.
I will take a boring sector.
That's getting some good growth.
I'll give you an example.
I know consumer staples that are growing at,
uh, 8% a year.
(25:47):
Um, they're expensive, but, uh, you know, that's,
that's not bad growth for a consumer staple,
right?
It's not a hundred percent growth.
It's not 50% growth.
Um, but it's, it's, it's fairly good.
Uh, you know, there are banks are reporting
this week.
They had blowout earnings.
They don't always have blowout earnings, but some
of the best banks do.
(26:07):
I typically do do very well.
And what do I look for there to
get consistency?
Uh, I look for a diversified bank with
a good manager.
So what do I mean by diversified?
Usually they have custody, they have investment management,
they have investment banking.
Um, and they have, uh, you know, investment
banking can have sales and trading and can
have, um, you know, uh, uh, advisory businesses,
(26:28):
investment manager, and then it has conventional banking
as well.
So, um, those are the four things I'm
looking for.
Uh, not, not every bank has that.
For example, Goldman Sachs is very heavily indexed
towards investment banking.
So, so they can be more cyclical.
Uh, JP Morgan has, you know, all four,
all four categories that I'm looking for.
Um, but they're also growing.
(26:48):
I mean, their, their, their growth, their earnings
increased 50% year over year.
They've had the same CEO for quite a
long time.
Um, you know, that's consistency, consistency with growth.
You might find it in a place like
the utility sector, which, you know, typically is
the head one to 2% growth, but
now is expected to have seven to 8
% annualized growth for the foreseeable future.
(27:08):
You know, seven to 8% growth.
Again, it's not, it's not mind boggling growth,
but it's 4% higher than GDP.
Um, it's 3% higher than nominal GDP.
Uh, so it's not bad.
And if you can get those at a
decent price, uh, plus, you know, a decent
dividend yields, you, you, you could reasonably expect,
you know, 10% on that, on a
(27:30):
company like that.
Um, then there can be like staples, like
a Costco or, um, which again, unexciting, but
they can raise prices on their membership fees,
uh, which is cashflow to the bottom line.
Um, and you know, they have over a
90% retention rate.
So there's things like that, that are consistent,
that have steady growth, that are in a
(27:51):
wide variety of sectors that have proven business
models, um, that you can have a fair
amount of confidence that are, is going to
be, um, consistent for, uh, the foreseeable future.
One of the things I wanted to include
in this conversation, um, is something that I
know it's not the way, uh, Brian thinks
about, uh, investing, but it we'd talk about,
(28:16):
uh, uh, investing, we'd talk about, uh, style
boxes and, uh, growth and value and this
notion of, um, uh, historically, you know, you'd
have this battle between growth and value and,
you know, alternate between the two.
And we've had this long run where growth
(28:37):
companies generally have done better.
Um, but you know, the dogs, the Dow
represents more of that value end of the
spectrum.
Um, but, uh, you know, I, I sometimes,
uh, you know, I know the way people
think about value today is different.
It's not necessarily the way we used to
talk about it in the past.
When you think about utilities and, um, you'd
(28:59):
think about, uh, dividend payers and, and things
like that.
Um, and the way we talk about growth
is not necessarily the same, you know, I
perhaps it's more granular, it's more nuanced.
It's, uh, it's not necessarily industry oriented, uh,
you know, as much, uh, as it is
company, uh, specific, but, um, Brian, uh, you
(29:23):
know, I, I'll give you a chance to,
to talk about that, but I, I do
think that, you know, investors still sometimes think
about the notion of, you know, will there
be a, a cyclical, you know, element of
the way the economy moves and whether industries
will be benefited by different, you know, industry
impact in the, in the economic cycle and,
(29:44):
um, growth and value kind of feeds into
that mindset, um, somewhat.
Uh, do you want to talk at all
about that, uh, notion of, uh, how investors
might, uh, maybe either correctly or incorrectly think
about growth and value and how it should
be represented in their portfolio?
(30:07):
Yeah, I think, um, I think it's a
big mistake to spend a lot of time
thinking about the, the, the style boxes and
what, especially when you're buying individual stocks, maybe
not necessarily on an ETF mutual funds, um,
allocation, it might help you get diversified, uh,
in a way.
Um, you know, if you're doing it from
that perspective, but if you're looking for individual
stocks, as far as I can tell, and
(30:28):
you correct me if I'm wrong, but the
biggest methodology used to determine whether a stock
is growth or value is the price to
earnings ratio.
Um, would you agree with that?
I think that's true.
I think that's true for the most part.
Um, and I don't like the price earnings
ratio.
Uh, so here's, here's why I don't like
the price earnings ratio.
(30:49):
It only takes into account one year of,
of earnings.
Uh, and it only takes into account the
current price.
So, uh, if you have a trailing PE
ratio, it says, you know, what's the price
today versus the earnings that they made in
the prior 12 months, if you're looking at
the forward earnings ratio, you're saying what's the
price today, uh, versus the earnings, um, that
are expected over the next 12 months.
(31:11):
So there's, there's some obvious problems with this,
right?
We can, a company might've had a great
2024, uh, and they, they would have a
very, you know, relatively low PE ratio because
they had a great 2024.
I mean, the market might be saying, Hey,
it was a one-time thing, right?
That it was a commodity cycle.
(31:31):
For example, you see this sometimes with like
steel companies.
One time I remember I saw us steel
had a PE ratio of one.
Um, why did that have a PE ratio
of one?
Because it was expected to lose money for
the foreseeable future.
Um, that's not, that's not value to me.
Uh, that's a, that's a dying organization.
Um, and that would be bucketed as, as
value.
Uh, and to me, value is what you
(31:53):
get and price is what you pay.
Um, that'll, that'll adage and, you know, growth
needs to be considered in that formula.
So, um, you know, one of the recent
changes that we made in our discretionary portfolios
is we sold Verizon, which is on the,
in the dogs of the Dow.
Uh, and we bought Uber.
Uh, and if we're going to look at
(32:14):
expected return, um, we already talked about how
Verizon is expected.
Let's call it 7%.
Let's just round up.
They're expected to have 7% growth.
Uh, you know, Uber is growing, you know,
historically the last couple quarters between the 15
and 20% range on, on revenue, uh,
(32:35):
and they're, they're just became profitable and they're,
they're, you know, clocking some, some serious revenue
growth.
The numbers are in the thousands, so it's
not even worth quoting.
Um, and the PE ratio is around 30.
So that you have a question of, okay.
On the face of it, it, you know,
(32:55):
Uber doesn't pay a dividend.
Uh, they did, they did start a buyback.
So if you're just going to look at
that metric, you're going to say Uber is
not very, um, it's not a good value
versus Verizon, but it basically, if you look
at any other metric, um, including growth, including,
you know, uh, expected future cash flows, uh,
it's, it's a much better value, um, than
Verizon.
At least in my opinion, I would expect
(33:16):
a company growing at, uh, you know, close
to a PEG ratio of one, let's call
it, or, or some metrics, you know, PEG
ratio well below one, um, would, uh, would
have an expected return much greater than, uh,
you know, the dividend yield of Verizon.
And, you know, that's, that's what we're hoping
for.
And ultimately I think that stocks do reach
(33:39):
their value.
I think the price comes to, um, close
to what you get in the long term,
not necessarily in the short term, but in
the long term, I think that's true.
So, you know, that's a good example of
how I think Uber is a better value,
even though it's a quote unquote growth stock
than maybe the conventional company Verizon, which is
probably bucketed as a, as a value stock.
(34:01):
Thanks.
I want to take a moment to just
mention for compliance, uh, mention of specific stocks
is not a recommendation or offer.
Individual investors should do their own due diligence
to determine opportunities for, for their own circumstances
and, uh, always consult your advisor, or if
(34:22):
you need help with that, you can certainly
reach out to us.
So, uh, this was a good conversation.
Thank you guys.
I appreciate it.
And, uh, anything to add, anybody want to
add any additional thoughts before we wind down?
No, thank you, Brian.
Great.
I just wanted to tag on at the
end.
Um, you know, I, I did a brief
(34:43):
synopsis on, uh, on Uber and Verizon in
there, but one of the things I think
is important is the longevity of these companies,
right?
We, we want consistency with that growth.
We've established that Uber has significantly more growth,
but do I think it's going to last
longer than Verizon?
And this is why Uber is trading so
inexpensively.
There is a big debate, uh, about what
(35:03):
is going to happen when automated cars come
in.
I, I think it's a very fair and
healthy debate.
Um, what, what I, what my position is
probably going to be is they're going to
make a lot of, uh, continued agreements with
companies that they've made with Waymo, with Waymo.
They basically said, you can have access to
our platform.
If we can have access to your cars,
they have a partnership.
I think that's going to continue with most
(35:24):
autonomous driving, um, which I think is an
exciting opportunity.
Why?
Cause they have the network effects.
They have the people who are already on
the app.
Why try to recreate that, um, community when
it's already there, when you can just go
into a partnership with Uber.
So that's my position, right?
So that's why you have to think about
the business model in the longterm.
Now, Verizon, it might seem like, you know,
they have very few competitors, but they have
(35:46):
two very big competitors in AT&T and
T-Mobile, um, along with some, some smaller
competitors.
Um, in addition to that, you know, goodbye
to, uh, linear TV.
That's not even a business that they're in
anymore.
Um, and, uh, hello to Starlink.
Uh, you know, I don't think that gets
a lot of, uh, talk yet.
(36:08):
Uh, but you know, reasonably this is providing
internet access to places that don't have internet
access.
Um, you know, satellite internet hasn't been reliable
that reliable in the past.
Uh, but I, I, I have reason to
believe that that could change.
I mean, just like everything, things tend to
get better with time.
(36:29):
So, um, you know, we get those two
big competitors and they obviously have, they have
more competitors.
They have some businesses that are dying.
Um, they have a lot of debt.
Uh, you know, these are, these are all
things to consider about the longevity of, of
that business model.
And I'm not saying that Verizon is going
to go away anytime soon or anything like
that.
I'm just saying if you're going to compare,
you know, the upstart versus the incumbent, um,
(36:50):
which in this case we kind of are,
I think it's a, it's a fair conversation
or fair, uh, thought experiment to have.
Good stuff.
Brian, it's been fun having you on.
Thanks for joining us today.
Thanks for having me guys.
I really, I really enjoy it.
Before we wrap up, I wanted to, uh,
wish my mom a happy birthday and, uh,
for anyone else, if you need any help
(37:11):
with your financial planning or portfolio management, don't
hesitate to reach out to us until next
time, everybody keeps driving for something.
Thank you for listening to something more with
Chris Boyd.
Call us for help, whether it's for financial
planning or portfolio management, insurance concerns, or those
quality of life issues that make the money
matters matter.
(37:31):
Whatever's on your mind, visit us at something
more with chrisboyd.com or call us toll
free at 866-771-8901.
Or send us your questions to amr-info
at wealthenhancement.com.
You're listening to something more with Chris Boyd,
financial talk show, wealth enhancement, advisory services, and
(37:52):
Jay Christopher Boyd provide investment advice on an
individual basis to clients only proper advice depends
on a complete analysis of all facts and
circumstances.
The information given on this program is general
financial comments and cannot be relied upon as
pertaining to your specific situation.
Wealth Enhancement Group cannot guarantee that using the
information from this show will generate profits or
ensure freedom from loss.
Listeners should consult their own financial advisors or
(38:12):
conduct their own due diligence before making any
financial decisions.
Welcome to something more with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president, financial advisor at wealth
enhancement group.
One of the nation's largest registered investment advisors.
We call it something more because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome everybody to another episode of something more
with Chris Boyd.
I'm Chris Boyd.
I'm here with members of our team from
the AMR team at wealth enhancement group.
(00:42):
Uh, Russ Ball is in the studio with
me.
Jeff Perry is in Florida and Brian Regan
is in Boston.
So thank you all for being here.
Uh, our topic today is to discuss the
dogs of the Dow.
I've run across this a couple of times
recently after not having, uh, had exposure to
(01:03):
the dogs of the Dow for, I don't
know, it's been, it's been a long time
since this came across my, my radar, but,
uh, recently I've had a client who had
this position as part of their portfolio and,
um, I've, I've come across an article and
a couple of things where people were talking
about the dogs of the Dow.
(01:25):
So now, uh, typically the, what maybe Brian,
you want to explain for our listeners, what
the dogs of the Dow is before we,
uh, I want to dive into some of
the, uh, the impact of a defined portfolio,
but, uh, in a unit investment trust, but
tell us a little bit about what is
the dogs of the Dow?
Sure.
Uh, thanks for having me today, guys.
(01:46):
It's been a while.
It's always fun to do this.
Um, so the dogs of the Dow is
you take the, the 10 highest yielding stocks
in the Dow Jones industrial average, which has
30 stocks in it, um, and that you
make that your portfolio for the year.
Uh, that's, that's essentially what it is.
The idea is if it has a high
yield, if it's in a blue chip index,
like the Dow Jones, um, then, uh, you
(02:08):
know, that it might be a good indication
of value.
Um, so that's, that's the idea.
Yeah.
So they're presumably, these are quality companies generally,
by virtue of being in the Dow Jones
industrial average.
And then, um, you're taking the 10 best
income.
So people who might be looking for a
good yield, we can, we're going to talk
(02:29):
about that.
Let me come back to this.
Uh, uh, some of the virtues and merits
or, or not of this as an investment
strategy, let's talk about how this is often
acquired.
Uh, oftentimes the way people obtain this, it's
sold to them by a financial advisor who,
uh, is selling a unit investment trust, a
(02:51):
unit investment trust is a, uh, a bundle,
a portfolio that you can buy now it,
uh, it's an investment product, uh, oftentimes it's
sold by commission, uh, though not always, but
generally, um, and.
Essentially, uh, it doesn't have to be as
limited as 10 stocks.
It can be something else, some other theme
(03:13):
that drives the selection, but it is a
portfolio that is retained for a specific period
of time.
Off, as you mentioned, the dogs of the
Dow, the theory is often for 12 months.
Um, the, a unit investment trust often will
last for about 15 months, sometimes even longer,
more like around three years.
So depending on the product you might select,
(03:35):
um, I generally think there are other products
in today's world that I would utilize as
a way to invest.
Uh, by and large, um, uh, defined portfolio
is something I'm going to buy in January,
but there's no, um, Shane, excuse me.
(03:55):
There's no change in the portfolio in any
way over the course of the year.
So there's no window, there's no opportunity for
assessment or revision.
Uh, it's either you own the bundle or
you don't, that's essentially what a defined portfolio
is.
Um, you could argue, well, isn't that true
with an ETF or, um, uh, mutual fund.
(04:19):
And in some instances that may be true,
but oftentimes there is active management and we
can come back and talk about that, uh,
the, the benefits and drawbacks of that.
But in any case, a defined portfolio, a
unit investment trust is usually how people acquire
the dogs of the Dow.
You could certainly do it yourself with the
purchase.
(04:40):
Uh, the question then becomes, are they held
in equal weight?
Are they held in cap weight?
Uh, what's, what's the weighting mechanism you use?
Is it somehow arranged by yield?
So these are things you might not know.
And, um, that's why people would typically acquire
it and the form of a, a packaged
product.
Um, I generally am not a fan of
(05:02):
unit investment trusts or defined portfolios.
Anybody else want to weigh in on that
question right out of the gate?
Jeff, Brian, what do you think?
Well, I don't really understand the point of
a defined portfolio period ever, um, because things
change.
I mean, if we just look at the
dogs of the Dow in 2024, for example,
(05:24):
uh, Walgreens Boots Alliance was in, uh, was
in the Dow Jones at the beginning of
the year and it fell out during the
year.
So, you know, just from that mechanism, you
know, you're not even holding true to your
investment strategy is, is, is, you know, uh,
not great as investment strategy, I think this
is.
We're not even holding true to it.
Um, just because we're in a, you know,
a defined position from, from the very beginning.
(05:46):
Uh, I believe that you, we should, uh,
research, research our stocks, but also, uh, before
we buy them, but also monitor them for,
for changes in business model, changes in price,
um, et cetera, et cetera.
There's lots of things that could, uh, change
the value proposition of a, of an individual
stock.
Well said I I'm in complete agreement.
Jeff, did you want to add to that
in any way?
(06:07):
No, I'm not, I'm not a proponent of
it.
It's, uh, the history of the dogs of
the Dow and that's when you would buy
those 10 stocks on the first trading day
of the year with the highest yield and
keep them, right?
You don't, you don't take them out.
If they fall out of the highest 10
dividends, you keep them.
So the old, that's right.
The, the, in this issue though, if, if
(06:28):
you're having the dogs of the Dow and
one, the position falls out of the Dow,
what do you do?
It's a, uh, is it now you, you
replace that position or, yeah.
I mean, I guess you keep it, right.
I mean, the idea is that you keep
it the time in the market and that's
somehow reflecting.
I mean, it could, it could go out
of the top 10 dividend payers and stay
(06:48):
in the Dow because as a price appreciation,
right, or a dividend decrease, I mean, if
I'm going to, if I'm going to try
to find a benefit of it, I like
things that are, uh, have a little turnover.
I don't want, I have, I have more
selling stocks because when you sell a stock,
it's, uh, you know, it can mean one
of a few things.
It could mean that the company has gone
(07:08):
South.
Uh, you know, the business model is no
longer intact.
The reason why you bought it is no
longer there.
Uh, or, you know, maybe it, uh, the
price appreciated a whole lot and, uh, you're
selling a company that you really like just
because it's gotten too expensive.
Um, you know, there's usually not a lot
of great reasons to be selling a stock.
You usually want to be holding it for,
for a really, really long time and get
those compounded returns.
(07:29):
So from that aspect of it, it might
hold people to a strategy who might otherwise
have trouble with that.
I like that idea.
I don't necessarily love the execution through, uh,
the strategy of the dogs of the DAO.
I would argue that, um, the, the place
for, uh, defined portfolios, unit investment trust is,
(07:51):
is largely a by-product of a gone
by era.
Uh, this is a product that's, you know,
designed to be, uh, uh, maybe a stockbroker
sold.
Uh, you know, it's a product sale, uh,
where a commission is earned.
Uh, I just think of that as something
that, you know, today we want to design
(08:12):
a portfolio.
We want to have some ongoing, uh, control
of that.
And, uh, we're not just pushing a product
that, you know, that this would, I think
is more of that, uh, experience that, um,
that era of, uh, experience.
Chris for, uh, for our listeners.
(08:33):
Can I take a second and just tell
the listeners who they are right now or
who they are for 25?
Sure.
Good idea.
Might be helpful.
So the 10 stocks with the highest dividend
rate in the Dow are Verizon, Chevron, Amgen,
Johnson and Johnson, Merck, Coca-Cola, IBM, Cisco,
(08:56):
McDonald's and Procter and Gamble.
So, I mean, a lot of names people
know.
Um, let's, let's talk about just the, uh,
the concept of one of the things that
the dogs of the Dow implies is the,
uh, investment approach of investing for dividend.
(09:17):
And, uh, is that meritorious or not?
Um, it's very common.
It's very common.
And there's some attractive features for people who
particularly who are in maybe own, uh, names,
stocks, or a fund that they could just
retain and draw cashflow from.
(09:39):
And that sounds appealing.
Right.
Uh, but that's not really always the way
we encourage investors to think.
I'm going to let Brian tackle this, uh,
the idea of income investing versus total return
investing.
It's not the first time we've talked about
it, but I think it's worth, uh, revisiting
as a topic.
Yeah.
Before I go on my normal speech here
(10:01):
that you guys are all familiar with.
I Chris, I thought you said something interesting
that relates to this.
He said, commission products are, uh, you know,
time of a bygone era.
Uh, but so is dividend investing.
You know, there was a time probably, probably
prior to 1950 where the dividend, uh, on
an index like Dow Jones would almost always
be higher than a treasury rate, for example.
(10:23):
Um, and the reason for that is because
stocks are, um, uh, more risky than, than,
than fixed, uh, you know, uh, treasury treasury
bond, you know, so they should require a
higher rate of return.
Um, and in those days, you know, a
lot of the industry was based on, uh,
returning share returning cash to shareholders through, uh,
(10:45):
dividends.
Today we do a lot of that through
share buyback and there's a lot more emphasis
on, uh, research and development and capital expenditures,
um, than there might've been prior to that
time.
So now the emphasis is on and the
type of businesses that.
Comprised the economy.
(11:06):
There's been some evolution of that as well.
And that may be part of why, right?
I mean, to say the least, right.
Uh, before 1995, we were bricks and mortar
economy, and now we're a much more of
a bites and bits economy.
Uh, and that has, uh, reshaped, uh, a
lot of the ways that we should be
thinking about investing.
Uh, if you look at, uh, margins on
the S and P 500, for example, from
(11:28):
that time, we went from 6% in
1995 to almost 13% today, uh, that
is indicative of, uh, of software eating the
world.
Um, you know, margins on software are much
greater than, uh, you know, you'll get, um,
from, from selling, uh, items through, through Walmart
at a discount.
So, uh, you know, that's just one example
(11:48):
of, of how, how the economies change and,
and how we need to think about that.
But in addition to that, the reason why
we don't, you know, we, we buybacks were
far less common than they are now.
Uh, buybacks are a way of returning, uh,
uh, capital to shareholders.
Uh, that's more tax efficient than dividends.
And it often gets overlooked, especially when people
are concentrating on dividend yield.
(12:09):
I, it doesn't say anything about the buyback
yield here.
Uh, part of that is good reason.
Um, the buyback is, uh, often temporary, um,
where the dividend is often more consistent, uh,
but not all the time.
And that's important, especially when you're looking at,
uh, some of these very, very high dividend
paying stocks.
Uh, sometimes there have very, very high dividend
(12:30):
yields because the, the dividends going to be
cut.
Um, so that, that, you know, that kind
of leads me into the four things that
you can do with a company can do
with its earnings, right?
Uh, it could pay down debt.
It can buy back shares.
It can reinvest in the business or it
can pay a dividend.
Uh, and for each, uh, different type of
business, uh, uh, different part of the maturity
(12:51):
cycle, uh, different options might be appropriate, right?
If they have, uh, if it's a new
growing company, it might be better for them
to reinvest in the business and get a
high return on, on capital.
If it's a more mature business, uh, you
know, like say Coca-Cola, which is here
on the, in the dogs of the Dow,
it might make sense to pay a, pay
a larger dividend.
Um, but that's, uh, you know, company specific
(13:13):
and it doesn't necessarily mean that one is,
one is better than the other.
If you have a really highly indebted company,
uh, that is trading at a very, very
low valuation because of its prospects of possible
bankruptcy or lack of funding, and then it
gets a lot of funding, even if it's
through the equity market, you might see that
stock go up because the reason why the
(13:33):
valuation was depressed was because of the heavy
debt load.
So, um, a lot of how we evaluate
stocks, you know, it's too simple to look
at the dividend yield and say it's a
good value.
Uh, you need to look at the cash
flows, the growth and what they're doing with
those cash flows and whether that business model
is going to continue well into the future
or if it's, you know, a flash in
the pan.
(13:56):
So I think, you know, we, we have
said over and over again to our listeners
that as much as sometimes it can be
attractive to think in terms of buying, uh,
on the basis of dividends, very often we
might be taking on risk.
We don't recognize, um, the quality of the
(14:17):
company, uh, that has a very high dividend,
maybe at risk, right?
There may be added risk there.
And there may be some concern of the
future earning capabilities, Brian, and you've talked about
in many instances with clients, uh, examples of
a high paying dividend, uh, company, but it's
(14:37):
funding their dividend through a dilution of share
value.
Uh, there can be other considerations that can
be problematic, right?
So we often see instances where, uh, yield
is as much as it can appear to
be attractive to the investor.
They actually be a warning sign.
Sometimes it may not be as appealing as
(14:59):
it might seem.
Um, and that can be true with bonds
as well as stocks that can be more
risk when it comes to higher yield, um,
comments.
Yeah.
I mean, as you guys know, sometimes I
struggle with being diplomatic with my speech, uh,
and I've often called those types of stocks.
(15:19):
I've often called those types of stocks that
Chris has mentioned as Ponzi schemes, which may
or may not be fair, but, um, you
know, you'll see that they'll issue shares and
then increase their dividend at the same time,
which, uh, you know, you're basically, um, you
know, robbing Peter to pay Paul, uh, which
doesn't make a whole lot of sense to
me.
It's not, it's not very common, uh, but
it certainly happens.
(15:40):
Uh, and I, you know, I, if anybody
wants to contest me on that, I have
a couple of stocks in mind that I
don't necessarily, um, you know, aim right now.
Yeah.
But even, uh, less nefariously, right?
Like Verizon is the highest yielding stock on
this list at 6.82%. Right.
Uh, we all are well aware of Verizon.
(16:00):
We're well aware of the brand.
I'm sure, I'm sure most of us, if
not all of us pay a bill to
Verizon.
Um, so, you know, it's, it's very commonly
thought of as, um, you know, a, a
relatively low risk staple, which, you know, I
think it is.
If you, if you look at the financial
statements, you know, the, there's no growth whatsoever.
(16:21):
Uh, there's not a whole lot of decline
either.
Uh, there's, there's marginal decline and there's marginal
risk, but on the whole, I would say
it's, um, you know, the revenue growth is
flat.
So the revenue growth is flat and we
get a yield of 6.82%. What's your
reasonable guess on what your return is going
to be on this, on this stock, all
things equal.
(16:41):
My guess would be 6.82%, right?
You're not, the company's not growing.
Um, and you know, you, you, you're getting
6.82% in the dividend.
You know, you're only going to get the
income.
You're not going to get much price appreciation.
Now, um, yields could fall and that could
lead to price appreciation.
Um, you know, they, they could restructure their
debt, which they have a whole lot of,
(17:02):
which is part of the reason why it's
the press stock.
Um, they are buying, uh, a competitor, uh,
that could go well, but it probably won't.
Um, and I'm not saying that that is
disparagingly to Verizon.
Statistically, most of these large acquisitions do not
work.
So we have a highly indebted company that's
getting more into debt by a competitor that's
(17:23):
already not growing very much.
Um, you know, to, you're, you're taking a
good amount of risk to get that 6
.82%. Now take, um, you know, the S
&P 500, for example, that's average 14 to
15% over the last decade, uh, that
doesn't match up very nicely.
Uh, and if you think that's an unfair
comparison, because you might recognize that, you know,
(17:46):
the S&P 500 might have, uh, things
in it that aren't necessarily staples, then you
can look at the high yield bond market,
which you could probably get close to a
7% yield in today, maybe, maybe, you
know, six and a half, something like that
on average.
Um, so I can actually go down in
the capital structure, take less risk, diversify my
bond portfolio and get a similar yield.
(18:07):
Um, that is a better prospect to me.
And that's why, you know, I don't think,
uh, Verizon, despite its high yield shows, you
know, significant amounts of quote unquote value, uh,
which I think a lot of people would,
would, uh, bucket this as a quote unquote
value stock.
Brian, are there any other names in the,
uh, the dogs of the Dow list that
(18:28):
you would, um, want to talk about that
you'd look at and say, oh, well, you
know, there's things out there.
Yeah.
Well, I love consistency and growth as you
guys know.
Right.
So if you look down this list and
I'll repeat it for everybody, Verizon, Chevron, Amjon,
Johnson and Johnson, Mark, Coca-Cola, IBM, Cisco,
(18:48):
McDonald's, and Procter and Gamble.
Um, that's the 2025 list.
Do any of those scream to you that
they're going to have any growth in the
future?
To me, they don't.
Yeah.
I mean, not a single one.
Um, you know, Merck's biggest drug is Keytruda.
Uh, it's one of the best selling drugs
of all time.
It's a cancer and, uh, it's a cancer
(19:09):
therapy.
Uh, but my understanding is part of the
reason why Merck is trading down is that
the patent is coming up relatively soon, which
means that you will get, uh, and I
also think it's part of the, on the
Medicare list and the negotiated prices.
Um, so, you know, for those two reasons,
the, the optimism around that drug might not
(19:29):
be where you might imagine it to be
for one of the best selling drugs of
all time.
Uh, Chevron is an oil and gas major.
It's very, very highly cyclical.
It might grow for a little bit, but
we are, we know that cyclical is not
consistent.
Um, so it's not going to get up,
you know, a nice valuation for that reason.
Um, you know, McDonald's is, it's interesting.
(19:51):
Uh, there's been times when I've thought about
pulling the trigger there.
Uh, there's certainly, it's certainly consistent.
Um, you know, they've had some interesting history
with their CEOs, uh, too much turnover for,
for my, for my taste, uh, which is
part of the reason why we stayed away.
Procter and Gamble, again, very consistent, but you're
probably only looking at three, 4% growth
(20:11):
trades at over 30 times earnings.
The last time I checked, I'm not, through
some, uh, uh, revisions and, uh, they've had
some iterations.
Anything, anything interesting happening there?
I mean, it's been a while since I
did a deep dive on IBM, but to
me, they should be, they should be able
(20:32):
to come up with something, you know, that,
that could be interesting because if you think
about we're in the age of artificial intelligence
here, right.
And who came up with Watson?
Does anybody ever watch Watson on?
Yeah.
Um, I, I was always amazed at how
that kind of disappeared into, you know, nothingness
and never really found any, um, pretty common
in the business, in the business cycle, development
(20:53):
cycle, right?
The first to have the idea isn't usually
the one who makes all the money.
Right.
You know, it's like that Gartner hype cycle
thing.
Have you ever seen that chart?
So it's pretty interesting, interesting chart.
I like to lay it over the.com
boom.
I think that's, you know, fascinating.
I don't get much activity on my MySpace
account anymore.
I don't know.
Right.
(21:14):
I mean, there's a lot of things like
that.
And now, you know, Cisco, one of the
interesting things about this, and I was actually
talking about this, um, over this past weekend
with somebody, uh, you know, I was basically
asked, like, can a stock go down because
it's priced too high?
And I go, do you know that Cisco
has never made its 2000 high again in
the last 25 years, despite it's, you know,
(21:35):
continue to grow, uh, and be a viable
organization.
So, um, there's nothing here that I'm excited
about.
Uh, there's nothing here that I own anymore,
you know, for disclosure.
Um, so, you know, take that for what
it is, but you know, the dogs of
the Dow, uh, in 2024, if I'm looking
at this article from, uh, investing.com only
(21:56):
did 2.5, 3% in 2024.
Um, I don't know, that's not too impressive
in a, in a year with the S
&P 500 to 25%.
So, um, you know, that's kind of my
take on, on these stocks.
They're, they're kind of old, they're mature.
Um, they might, uh, they're, they're cyclical.
Um, you know, they might surprise you, but,
(22:18):
uh, I, I wouldn't, they don't, they don't
check my boxes of consistency and growth.
I don't disagree with anything Brian's saying.
Um, but I do, I, I do have
a question for Chris and Brian here.
So I think one of the reasons that,
uh, the dogs of the Dow maybe less
than used to be, but is attractive to
people because they want to own a significant
(22:40):
number of investors, savers want to own individual
stocks.
They'd like owning individual stocks.
Um, and how can they do that?
Are they just going to randomly pick companies
that they know and do a little research
and buy them individually?
This is a strategy that at least has
a theory behind it.
It's in companies that are, you know, known
(23:01):
and there's information available about it, I think
that's the attractiveness to some people to maybe
employee, uh, dogs of the Dow strategy.
And they, because they want to own individual
stocks and they really don't know how to
approach it.
Um, if you have a client framework, if
you have a client that comes in and
says, I'd love, maybe they have a portfolio
that they're bringing in and it's individual stocks
(23:23):
and they want to own them, what's, what's
the best advice for people who, you know,
maybe have the assets that they can afford
the risk of owning some individual stocks.
How, how should they approach that?
Do you want to take that Chris?
You want me to run with it?
Yeah, go for it.
I'm going to let you.
Oh, well, you know, I, I, uh, we
(23:43):
have a portfolio of stocks.
It's, it's between, uh, you know, 30 and
40 stocks.
It rarely ever gets as high as 40
stocks because we like to keep it concentrated.
Uh, why do we like to keep it
concentrated?
There's not a ton of stocks that, uh,
we love.
Um, and we want to have good allocations
to, to the stocks that, uh, we really
like.
So, you know, I think my, my first
(24:04):
thought on this, uh, you know, find somebody
that you trust, uh, to, uh, invest, uh,
logically in a, in a more concentrated portfolio,
because if you're not going to do a
more concentrated portfolio, you might as well, why
do we diversify through it, through an ETF?
That's, that's my position.
You're probably not going to perform.
Uh, one of the things about the dogs
and the Dow is it's concentrated, right?
It's only, it's only 10 stocks.
I mean, it's not that it's not the
(24:25):
10 stocks that I would pick, but I
would say it checks those boxes.
Um, the second thing that you need to
do when you're looking at, uh, individual stocks
is make sure you're diversified.
I could argue that the dogs, the Dow
isn't extremely widely diversified.
It's diversified enough.
You know, there's drug stocks, there's some tech
stocks, but they're kind of old, old tech
stocks.
(24:45):
Uh, there's a material stock.
Um, you know, it's, it's fine.
Kind of a enough, enough, uh, there's consumer
staples.
There's kind of enough, uh, diversification.
Um, what, what the dogs, the Dow is
missing is growth, right?
We, we want to find, if I'm going
to pick on one thing that I really
think we want to find business models that
(25:06):
are going to continue to grow well into
the future.
Um, and that's hard to find.
It's really easy to find companies that have
grown recently.
Uh, they get a lot of play on
CNBC.
Usually their stock market, uh, stock prices are
doing really, really well.
Um, and there can be very tempting to
buy.
Uh, it's really hard to find stocks that,
(25:26):
uh, are going to grow consistently for, for
a long time.
And sometimes, and this is a good thing.
Sometimes they're in very boring sectors.
Sometimes they're in exciting sectors.
And the good thing about this is that's
a great way that we can get diversification.
I will take a boring sector.
That's getting some good growth.
I'll give you an example.
I know consumer staples that are growing at,
uh, 8% a year.
(25:47):
Um, they're expensive, but, uh, you know, that's,
that's not bad growth for a consumer staple,
right?
It's not a hundred percent growth.
It's not 50% growth.
Um, but it's, it's, it's fairly good.
Uh, you know, there are banks are reporting
this week.
They had blowout earnings.
They don't always have blowout earnings, but some
of the best banks do.
(26:07):
I typically do do very well.
And what do I look for there to
get consistency?
Uh, I look for a diversified bank with
a good manager.
So what do I mean by diversified?
Usually they have custody, they have investment management,
they have investment banking.
Um, and they have, uh, you know, investment
banking can have sales and trading and can
have, um, you know, uh, uh, advisory businesses,
(26:28):
investment manager, and then it has conventional banking
as well.
So, um, those are the four things I'm
looking for.
Uh, not, not every bank has that.
For example, Goldman Sachs is very heavily indexed
towards investment banking.
So, so they can be more cyclical.
Uh, JP Morgan has, you know, all four,
all four categories that I'm looking for.
Um, but they're also growing.
(26:48):
I mean, their, their, their growth, their earnings
increased 50% year over year.
They've had the same CEO for quite a
long time.
Um, you know, that's consistency, consistency with growth.
You might find it in a place like
the utility sector, which, you know, typically is
the head one to 2% growth, but
now is expected to have seven to 8
% annualized growth for the foreseeable future.
(27:08):
You know, seven to 8% growth.
Again, it's not, it's not mind boggling growth,
but it's 4% higher than GDP.
Um, it's 3% higher than nominal GDP.
Uh, so it's not bad.
And if you can get those at a
decent price, uh, plus, you know, a decent
dividend yields, you, you, you could reasonably expect,
you know, 10% on that, on a
(27:30):
company like that.
Um, then there can be like staples, like
a Costco or, um, which again, unexciting, but
they can raise prices on their membership fees,
uh, which is cashflow to the bottom line.
Um, and you know, they have over a
90% retention rate.
So there's things like that, that are consistent,
that have steady growth, that are in a
(27:51):
wide variety of sectors that have proven business
models, um, that you can have a fair
amount of confidence that are, is going to
be, um, consistent for, uh, the foreseeable future.
One of the things I wanted to include
in this conversation, um, is something that I
know it's not the way, uh, Brian thinks
about, uh, investing, but it we'd talk about,
(28:16):
uh, uh, investing, we'd talk about, uh, style
boxes and, uh, growth and value and this
notion of, um, uh, historically, you know, you'd
have this battle between growth and value and,
you know, alternate between the two.
And we've had this long run where growth
(28:37):
companies generally have done better.
Um, but you know, the dogs, the Dow
represents more of that value end of the
spectrum.
Um, but, uh, you know, I, I sometimes,
uh, you know, I know the way people
think about value today is different.
It's not necessarily the way we used to
talk about it in the past.
When you think about utilities and, um, you'd
(28:59):
think about, uh, dividend payers and, and things
like that.
Um, and the way we talk about growth
is not necessarily the same, you know, I
perhaps it's more granular, it's more nuanced.
It's, uh, it's not necessarily industry oriented, uh,
you know, as much, uh, as it is
company, uh, specific, but, um, Brian, uh, you
(29:23):
know, I, I'll give you a chance to,
to talk about that, but I, I do
think that, you know, investors still sometimes think
about the notion of, you know, will there
be a, a cyclical, you know, element of
the way the economy moves and whether industries
will be benefited by different, you know, industry
impact in the, in the economic cycle and,
(29:44):
um, growth and value kind of feeds into
that mindset, um, somewhat.
Uh, do you want to talk at all
about that, uh, notion of, uh, how investors
might, uh, maybe either correctly or incorrectly think
about growth and value and how it should
be represented in their portfolio?
(30:07):
Yeah, I think, um, I think it's a
big mistake to spend a lot of time
thinking about the, the, the style boxes and
what, especially when you're buying individual stocks, maybe
not necessarily on an ETF mutual funds, um,
allocation, it might help you get diversified, uh,
in a way.
Um, you know, if you're doing it from
that perspective, but if you're looking for individual
stocks, as far as I can tell, and
(30:28):
you correct me if I'm wrong, but the
biggest methodology used to determine whether a stock
is growth or value is the price to
earnings ratio.
Um, would you agree with that?
I think that's true.
I think that's true for the most part.
Um, and I don't like the price earnings
ratio.
Uh, so here's, here's why I don't like
the price earnings ratio.
(30:49):
It only takes into account one year of,
of earnings.
Uh, and it only takes into account the
current price.
So, uh, if you have a trailing PE
ratio, it says, you know, what's the price
today versus the earnings that they made in
the prior 12 months, if you're looking at
the forward earnings ratio, you're saying what's the
price today, uh, versus the earnings, um, that
are expected over the next 12 months.
(31:11):
So there's, there's some obvious problems with this,
right?
We can, a company might've had a great
2024, uh, and they, they would have a
very, you know, relatively low PE ratio because
they had a great 2024.
I mean, the market might be saying, Hey,
it was a one-time thing, right?
That it was a commodity cycle.
(31:31):
For example, you see this sometimes with like
steel companies.
One time I remember I saw us steel
had a PE ratio of one.
Um, why did that have a PE ratio
of one?
Because it was expected to lose money for
the foreseeable future.
Um, that's not, that's not value to me.
Uh, that's a, that's a dying organization.
Um, and that would be bucketed as, as
value.
Uh, and to me, value is what you
(31:53):
get and price is what you pay.
Um, that'll, that'll adage and, you know, growth
needs to be considered in that formula.
So, um, you know, one of the recent
changes that we made in our discretionary portfolios
is we sold Verizon, which is on the,
in the dogs of the Dow.
Uh, and we bought Uber.
Uh, and if we're going to look at
(32:14):
expected return, um, we already talked about how
Verizon is expected.
Let's call it 7%.
Let's just round up.
They're expected to have 7% growth.
Uh, you know, Uber is growing, you know,
historically the last couple quarters between the 15
and 20% range on, on revenue, uh,
(32:35):
and they're, they're just became profitable and they're,
they're, you know, clocking some, some serious revenue
growth.
The numbers are in the thousands, so it's
not even worth quoting.
Um, and the PE ratio is around 30.
So that you have a question of, okay.
On the face of it, it, you know,
(32:55):
Uber doesn't pay a dividend.
Uh, they did, they did start a buyback.
So if you're just going to look at
that metric, you're going to say Uber is
not very, um, it's not a good value
versus Verizon, but it basically, if you look
at any other metric, um, including growth, including,
you know, uh, expected future cash flows, uh,
it's, it's a much better value, um, than
Verizon.
At least in my opinion, I would expect
(33:16):
a company growing at, uh, you know, close
to a PEG ratio of one, let's call
it, or, or some metrics, you know, PEG
ratio well below one, um, would, uh, would
have an expected return much greater than, uh,
you know, the dividend yield of Verizon.
And, you know, that's, that's what we're hoping
for.
And ultimately I think that stocks do reach
(33:39):
their value.
I think the price comes to, um, close
to what you get in the long term,
not necessarily in the short term, but in
the long term, I think that's true.
So, you know, that's a good example of
how I think Uber is a better value,
even though it's a quote unquote growth stock
than maybe the conventional company Verizon, which is
probably bucketed as a, as a value stock.
(34:01):
Thanks.
I want to take a moment to just
mention for compliance, uh, mention of specific stocks
is not a recommendation or offer.
Individual investors should do their own due diligence
to determine opportunities for, for their own circumstances
and, uh, always consult your advisor, or if
(34:22):
you need help with that, you can certainly
reach out to us.
So, uh, this was a good conversation.
Thank you guys.
I appreciate it.
And, uh, anything to add, anybody want to
add any additional thoughts before we wind down?
No, thank you, Brian.
Great.
I just wanted to tag on at the
end.
Um, you know, I, I did a brief
(34:43):
synopsis on, uh, on Uber and Verizon in
there, but one of the things I think
is important is the longevity of these companies,
right?
We, we want consistency with that growth.
We've established that Uber has significantly more growth,
but do I think it's going to last
longer than Verizon?
And this is why Uber is trading so
inexpensively.
There is a big debate, uh, about what
(35:03):
is going to happen when automated cars come
in.
I, I think it's a very fair and
healthy debate.
Um, what, what I, what my position is
probably going to be is they're going to
make a lot of, uh, continued agreements with
companies that they've made with Waymo, with Waymo.
They basically said, you can have access to
our platform.
If we can have access to your cars,
they have a partnership.
I think that's going to continue with most
(35:24):
autonomous driving, um, which I think is an
exciting opportunity.
Why?
Cause they have the network effects.
They have the people who are already on
the app.
Why try to recreate that, um, community when
it's already there, when you can just go
into a partnership with Uber.
So that's my position, right?
So that's why you have to think about
the business model in the longterm.
Now, Verizon, it might seem like, you know,
they have very few competitors, but they have
(35:46):
two very big competitors in AT&T and
T-Mobile, um, along with some, some smaller
competitors.
Um, in addition to that, you know, goodbye
to, uh, linear TV.
That's not even a business that they're in
anymore.
Um, and, uh, hello to Starlink.
Uh, you know, I don't think that gets
a lot of, uh, talk yet.
(36:08):
Uh, but you know, reasonably this is providing
internet access to places that don't have internet
access.
Um, you know, satellite internet hasn't been reliable
that reliable in the past.
Uh, but I, I, I have reason to
believe that that could change.
I mean, just like everything, things tend to
get better with time.
(36:29):
So, um, you know, we get those two
big competitors and they obviously have, they have
more competitors.
They have some businesses that are dying.
Um, they have a lot of debt.
Uh, you know, these are, these are all
things to consider about the longevity of, of
that business model.
And I'm not saying that Verizon is going
to go away anytime soon or anything like
that.
I'm just saying if you're going to compare,
you know, the upstart versus the incumbent, um,
(36:50):
which in this case we kind of are,
I think it's a, it's a fair conversation
or fair, uh, thought experiment to have.
Good stuff.
Brian, it's been fun having you on.
Thanks for joining us today.
Thanks for having me guys.
I really, I really enjoy it.
Before we wrap up, I wanted to, uh,
wish my mom a happy birthday and, uh,
for anyone else, if you need any help
(37:11):
with your financial planning or portfolio management, don't
hesitate to reach out to us until next
time, everybody keeps driving for something.
Thank you for listening to something more with
Chris Boyd.
Call us for help, whether it's for financial
planning or portfolio management, insurance concerns, or those
quality of life issues that make the money
matters matter.
(37:31):
Whatever's on your mind, visit us at something
more with chrisboyd.com or call us toll
free at 866-771-8901.
Or send us your questions to amr-info
at wealthenhancement.com.
You're listening to something more with Chris Boyd,
financial talk show, wealth enhancement, advisory services, and
(37:52):
Jay Christopher Boyd provide investment advice on an
individual basis to clients only proper advice depends
on a complete analysis of all facts and
circumstances.
The information given on this program is general
financial comments and cannot be relied upon as
pertaining to your specific situation.
Wealth Enhancement Group cannot guarantee that using the
information from this show will generate profits or
ensure freedom from loss.
Listeners should consult their own financial advisors or
(38:12):
conduct their own due diligence before making any
financial decisions.
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Therapy Gecko
An unlicensed lizard psychologist travels the universe talking to strangers about absolutely nothing. TO CALL THE GECKO: follow me on https://www.twitch.tv/lyleforever to get a notification for when I am taking calls. I am usually live Mondays, Wednesdays, and Fridays but lately a lot of other times too. I am a gecko.