This Dog Knows a Few New Tricks

One investment strategy that has generated consistent excess returns is known as the Dogs of the Dow. Of the 30 Dow stocks, the ten companies with the worst performance over the past year are bought, and in turn, they tend to generate market-beating returns as stocks revert to their mean over time.

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  • For investors, the start of the new year is a time to look at which companies made the list, and look for opportunities.

    Of the Dogs this year, one stands out for both income and growth potential.

    That stock is Intel (INTC). The chipmaker is up just 5.1 percent over the past year. While not a loss, it’s still one of the worst-performing Dow stocks from 2021.

    That’s in spite of the company adding new chip offerings, and seeing earnings jump by nearly 60 percent compared to 2020. Even better, the company is a massive cash cow, generating a 27 percent profit margin.

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  • Action to take: The tech company is also a dividend growth stock, with a 2.7 percent current yield at today’s prices. With a payout ratio under 30 percent, there’s room for more dividend hikes for years to come.

    Shares slid from April to October and have started to now head higher. That’s a good sign that the Dogs of the Dow strategy will work this year. For traders, that means a call option trade. The July $60 calls has half a year to play out, and with the trade last going for about $2.10, triple-digit returns are possible on a strong enough rally in shares.


    Disclosure: The author of this article has a position in the company mentioned here, but does not intend to trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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