The Dogs of the Dow and Other High Yielders Keep Roaring Into 2021

The Dogs of the Dow, which are the 10 highest-yielding stocks in the 30-stock Dow Jones Industrial Average, were up 4% year-to-date through Thursday, topping the overall index, which gained 1%. That followed a poor 2020, when the 10 Dogs returned negative 7.7% including dividends, far behind the Dow’s 9.7% total return.

The most popular way to invest in the Dow Dogs is to rebalance the 10-stock portfolio annually at year-end.

Leading the Dogs so far in 2021 are Walgreens Boots Alliance (ticker: WBA), Chevron (CVX), and JPMorgan Chase (JPM). The other seven stocks with the highest yields coming into 2021 are IBM (IBM), Dow (DOW), Verizon Communications (VZ), 3M (MMM), Cisco Systems (CSCO), Merck (MRK), and Coca-Cola (KO). The 10 Dow Dogs have an average yield of about 4%, double that of the overall index.

One of the largest dividend-oriented exchange-traded funds, the $31 billion Vanguard High Dividend Yield Index fund (VYM) is up about 3.5% year-to-date against an 0.6% gain for the S&P 500 index. The Vanguard ETF is dominated by large dividend payers like Johnson & Johnson (JNJ), JPMorgan, and Procter & Gamble (PG).

Read More: Barron’s Best Income Investments for the New Year

The $350 billion convertible market was up about 45% in 2020, making it one of the best U.S. asset classes. It was driven by huge gains in Tesla (TSLA), the largest issuer at about 10% of the market, technology, and by so-called rescue capital deals from companies that issued converts amid the pandemic in March to shore up their balance sheets.

So far this year, the market is up 5.3% as of Thursday based on the ICE BofA US convertibles index, driven mainly by Tesla, Plug Power (PLUG), and Wayfair (W), according to Michael Youngworth, the head of global convertibles strategy at Bank of America Securities.

There has been more than $2 billion of issuance so far from U.S. issuers and most of the deals have had interest rates of zero, reflecting strong investor demand. Issuers include DocuSign (DOCU) and Box (BOX). NIO (NIO), the hot Chinese electric vehicle maker, has issued $1.3 billion of convertibles in 2021.

The leading convertibles ETF, the SPDR Bloomberg Barclays Convertible Securities (CWB) is up 4% this year.

The interest-rate sensitive preferred stock market is off about 1% this year as measured by the top ETF, the iShares Preferred & Income Securities (PFF).

The losses are concentrated among $25 par preferred securities, which tend to be perpetual (no maturity date), making them acutely rate sensitive especially given historically low yields. New preferreds came to market in late 2020 at yields of about 4%, down from 5% last May. The 10-year Treasury yield is up about a fifth of a percentage point this year, to 1.09%.

The $25-par preferred market has been popular with retail buyers, thanks to previously attractive yields and liquidity since most trade like common stocks on the New York Stock Exchange.

That market is “beginning the year with a visit from the three ghosts of selloffs past: rising rates, wider spreads, and negative flows,” UBS analysts Frank Sileo and Barry McAlinden wrote in a recent note.

Write to Andrew Bary at andrew.bary@barrons.com