This year, the stock market suffered its worst first half in more than 50 years due to the Federal Reserve’s aggressive interest rate hikes to tame the record-high inflation, the Russia-Ukraine war, lingering supply chain disruptions, and an economic slowdown.
However, the major market indexes rebounded since July on better-than-expected corporate earnings and hopes that the inflationary pressure will ease and the Fed will pause its policy tightening.
A stronger-than-expected jobs report is tempering recession fears. However, the red-hot job market and the still uncomfortable inflation level could push the Fed to consider continuing its policy tightening. Therefore, the market is expected to remain volatile.
Amid this backdrop, investors could follow the Dogs of the Dow investment strategy. This strategy demands allocating money to the 10 highest dividend-yielding, blue-chip stocks from the Dow Jones Industrial Average. It became famous in 1991, following Michael B. O’Higgins’ book, Beating the Dow.
We think Dogs of the Dow stocks Merck & Co., Inc. (MRK) and Amgen Inc. (AMGN) are great investments now, given their fundamental strength. Also, one could hold Verizon Communications Inc. (VZ) and 3M Company (MMM).
Stocks to Buy:
Merck & Co., Inc. (MRK)
MRK is a global healthcare company that operates through Pharmaceuticals and Animal Health segments. The pharmaceuticals segment provides human health pharmaceuticals and vaccine products. The Animal Health segment offers veterinary pharmaceuticals, vaccines, health management solutions and services, and monitoring products.
On August 4, MRK and AstraZeneca, a global science-led biopharmaceutical company, announced that the European Commission (EC) approved LYNPARZA as adjuvant treatment for patients with germline BRCA-mutated, HER2-negative high-risk early breast cancer. The EC approval of LYNPARZA might prove beneficial for the company.
Last month, MRK and Orion Corporation entered a global development and commercialization agreement for the latter’s investigational candidate ODM-208, an investigational steroid synthesis inhibitor to treat metastatic castration-resistant prostate cancer, and other drugs targeting cytochrome P450 11A1, an enzyme crucial in steroid production.
“Targeting CYP11A1 provides a compelling approach to suppressing the production of steroid hormones, a key driver of prostate cancer. We believe ODM-208 has the potential to complement our existing program in prostate cancer,” said Dr. Dean Y. Li, President, Merck Research Laboratories. The agreement is expected to strengthen and complement MRK’s oncology pipeline.
In the fiscal 2022 second quarter ended June 30, 2022, MRK's sales increased 28% year-over-year to $14.59 billion. Its net income from continuing operations grew 225.3% from the year-ago value to $3.95 billion. Its net income attributable to MRK improved 155.3% year-over-year to $3.94 billion. The company’s non-GAAP EPS that excludes certain items amounted to $1.87, up 206.6% year-over-year.
MRK pays $2.76 as dividends annually, yielding 3.03% on the current price. Its dividend payouts have grown at a 10.2% CAGR over the last three years and an 8.8% CAGR over the past five years. The stock’s four-year average dividend yield is 2.93%.
Analysts expect MRK’s EPS to improve 22.5% year-over-year to $7.37 for the fiscal year 2022 (ending December 2022), while the Street’s $58.6 billion revenue estimate for the current year indicates a 20.2% rise from the prior year. In addition, MRK has topped the consensus EPS estimates in three out of the trailing four quarters.
The stock has gained 18.8% in price year-to-date to close the last trading session at $91.02.
MRK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
MRK has a grade of B for Value, Sentiment, and Quality. In the 171-stock Medical – Pharmaceuticals industry, it is ranked #3.
Click here to see MRK's POWR Ratings for Growth, Stability, and Momentum.
Amgen Inc. (AMGN)
AMGN develops, manufactures, and delivers human therapeutics worldwide. The company focuses on bone health, cardiovascular disease, inflammation, and neuroscience. AMGN’s products include Neulasta, Enbrel, Prolia, Xgeva, Otezla, Aranesp, Kyprolis, and Repatha. It serves healthcare providers, including physicians, dialysis centers, hospitals, and pharmacies.
On August 4, AMGN and ChemoCentryx, Inc. (CCXI), a biopharmaceutical company focused on orally-administered therapeutics to treat autoimmune diseases, inflammatory disorders, and cancer, entered into a definitive agreement under which AMGN will acquire CCXI for $4 billion in cash.
The acquisition includes TAVNEOS® (avacopan), a first-in-class medicine treating severe autoimmune diseases. TAVNEOS® is expected to add to AMGN’s decades-long leadership in inflammation and nephrology.
In the fiscal 2022 second quarter ended June 30, 2022, AMGN’s total revenues increased 1% year-over-year to $6.59 billion. The company’s non-GAAP operating income grew 107.7% year-over-year to $3.24 billion. AMGN’s non-GAAP net income rose 145.3% from the prior-year quarter to $2.50 billion. Also, the company’s non-GAAP earnings per share came in at $1.94, up 162.7% year-over-year.
AMGN pays a $7.76 per share dividend annually, translating to a 3.12% yield. The stock’s dividend payouts have grown at a 10.1% CAGR over the last three years and 11.5% CAGR over the past five years. Furthermore, its four-year average dividend yield is 2.84%.
The $6.43 billion consensus revenue estimate for the fiscal 2023 first quarter, ending March 2023, represents a 3.1% improvement from the same year in 2021. Analysts expect AMGN’s EPS for the same quarter to increase 7.9% year-over-year to $4.59. The company has an impressive surprise earnings history as it has topped the consensus EPS estimates in each of the trailing four quarters.
AMGN has gained 10.4% year-to-date to close the last trading session at $248.39.
AMGN’s POWR Ratings reflect a strong outlook. The company has an overall rating of B, which translates to a Buy in our proprietary rating system.
AMGN has a grade of A for Quality and B for Value. Among the 401 stocks in the Biotech industry, it is ranked #12.
Click here to see the additional POWR Ratings for Sentiment, Growth, Momentum, and Stability for AMGN.
Stocks to Hold:
Verizon Communications Inc. (VZ)
VZ provides worldwide communications, technology, information, and entertainment products and services. The company operates through two segments: Consumer; and Business. It offers postpaid and prepaid service plans, wireless equipment, wireless-enabled internet devices, and residential fixed connectivity solutions. Also, it provides network connectivity products, data security services, and more.
On July 26, VZ launched the Lenovo ThinkPad X13s, the first business-ready laptop to leverage full 5G Ultra-Wideband connectivity. This 5G Ultra-Wideband connected laptop is expected to empower employees with fast and secure connections since Verizon On Site 5G is a safe, scalable, and customizable all-inclusive solution that supports all the business-critical applications while enabling a high capacity.
In June, Version Business teamed up with Mastercard Inc (MA) and First National Bank of Omaha (FNBO) to launch a credit card designed to bring value to small business owners.
“We are pleased to expand this partnership to include FNBO and bring this small business credit card to our customers at a time when we know they are seeking new avenues to expand their business, manage costs and maximize their use of new technologies to solve challenges to drive growth,” said Tami Erwin, CEO of Verizon Business.
VZ's wireless equipment revenues grew 20.4% from the year-ago value to $6.67 billion, while its total operating revenues increased 9.1% year-over-year to $25.60 billion in the fiscal 2022 second quarter, ended June 30, 2022. The company’s cash and cash equivalents amounted to $1.86 billion as of June 30, 2022.
The stock pays $2.56 as dividends annually, yielding 5.67% on the current price. Over the last five years, the stock’s dividend payout has grown at a 2.1% CAGR. Its four-year average dividend yield is 4.43%.
Analysts expect VZ’s revenue to grow 1.9% year-over-year to $34.17 billion for its fiscal 2023 first quarter (ending March 2023). The $1.37 consensus EPS estimate for the same period represents a $1.37 improvement from the prior-year period. The company has topped the consensus revenue and EPS estimates in three of the trailing four quarters.
VZ has increased marginally over the past five days to close the last trading session at $45.15.
VZ's POWR Ratings reflect this promising outlook. It has an overall grade of C, equating to Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VZ has a grade of B for Stability. Within the Telecom - Domestic industry, it is ranked #4 of 20 stocks.
To see additional POWR Ratings (Value, Quality, Momentum, Growth, and Sentiment) for VZ, click here.
3M Company (MMM)
MMM is a diversified technology company that operates through segments including Safety and Industrial; Transportation and Electronic; Health Care; and Consumer. The company offers its products through e-commerce and traditional wholesalers, retailers, jobbers, distributors, and dealers.
On August 4, 3M Health Care’s Medical Solutions Division advanced the delivery of 3M™ Veraflo™ Therapy. The new offerings, including 3M™ Veraflo™ Cleanse Choice Complete™ Dressing Kit and a software upgrade for the 3M™ V.A.C.® Ulta Therapy Unit, would help simplify the care delivery processes for clinicians and make dressing changes more accessible, faster, and less painful for their patients.
In the same month, MMM revolutionized existing bonding solutions with a first-of-its-kind 3M™ On Demand Bonding System featuring 3M™ VHB™ Extrudable Tape, a new manufacturing bonding solution that brings high levels of automation, simplicity, and sustainability across industries. The new sustainable solution is expected to accelerate the company’s growth.
In the fiscal 2022 second quarter ended June 30, 2022, MMM returned $0.8 billion to shareholders via dividends. However, its sales decreased 3% year-over-year to $8.70 billion. The company’s adjusted free cash flow stood at $1.1 billion, down 41% from the year-ago value.
Furthermore, the company's adjusted earnings per share declined 9.8% year-over-year to $2.48 amid a continued uncertain macroeconomic environment.
MMM pays a $5.96 per share dividend annually, translating to a 3.91% yield. The stock’s dividend payouts have grown at a 2% CAGR over the last three years and 5.4% CAGR over the past five years. Furthermore, its four-year average dividend yield is 3.37%.
The $2.69 consensus EPS estimate for the fiscal 2022 third quarter, ending September 2022, represents a 10% improvement from the prior-year quarter. The company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters. However, analysts expect MMM’s revenue for the same quarter to decline 1.8% year-over-year to $8.78 billion.
Over the past month, MMM has gained 16.9% to close the last trading session at $152.24.
The company has an overall rating of C, which translates to a Neutral in our proprietary rating system.
MMM has a grade of A for Quality and B for Stability. Among the 79 stocks in the Industrial-Machinery industry, it is ranked #45.
Click here to access the additional POWR Ratings for Sentiment, Growth, Momentum, and Value for MMM.
MRK shares were trading at $90.56 per share on Monday afternoon, down $0.46 (-0.51%). Year-to-date, MRK has gained 20.19%, versus a -9.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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