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Why 2021 could be the year of the Dow dogs

January 12, 2021. Summarized by summa-bot.

Compression ratio: 59.4%. 2 min read.

The New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 9, 2020. DoorDash opened 84% above its IPO price. That's the third-best opening pop of 2020, excluding deals that raised less than $1 billion. Photographer: Michael Nagle/Bloomberg

There's more to the market than the FAANG stocks of Big Tech. It could finally be time for dividend-paying value stocks like the so-called dogs of the Dow to shine.

New York (CNN Business)There's more to the market than the FAANG stocks of Big Tech.

It could finally be time for dividend-paying value stocks like the so-called dogs of the Dow to shine.

The dogs of the Dow refers to a list of high-yielding stocks in the blue-chip average.

The theory is that if investors buy these stocks, many of which had struggled in the previous year but still offer the promise and stability of a big dividend, they should mount a solid comeback in the year to come.

As investors bet on more stimulus, an economic recovery and an eventual winding down of the Covid-19 crisis thanks to vaccines, dividend-paying value stocks might be due for a comeback.

This year's Dow dogs list includes Chevron (CVX), IBM (IBM), Dow (DOW), Verizon (VZ) and Walgreens (WBA).

The fact that Treasury bond yields, despite a recent spike, remain near historically low levels should bode well for the Dow dogs.

The US 10-year bond yields just 1. 16%.

Of course, there is no guarantee that this year's dogs will beat the market.

in fact, last year's dogs performed like, well, dogs.

Most of these stocks did so poorly that they are back on the dogs list this year.

3M (MMM), Cisco (CSCO) and Coca-Cola (KO) are all Dow dogs this year, just like in 2020.

But the strategy of buying top dividend payers in the Dow has fared better over the previous few years.

The Dow dogs outperformed the S&P 500 from 2015 through 2018.

So dividend payers and other value stocks could rebound this year -- especially if the economy and job market slowly returns to normal.

Stocks that were beaten down last year should recover over the near term," said Mark Hamilton, chief investment officer at Hirtle Callaghan, to CNN Business.

Hamilton added that unless interest rates spike dramatically higher, value stocks, and dividend payers in particular, remain attractive.

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