The “Dogs of the Dow” strategy consists of investing in the 10 highest-yielding stocks in the Dow Jones Industrial Average. Purchasing the Dogs of the Dow creates higher dividend income, by focusing on high-yielding stocks.

The following 3 stocks are part of the 10 Dogs of the Dow for 2023. They are not the highest-yielding Dow stocks, but they are among the top 10 and also have strong dividend growth potential in the years ahead.

Cisco Systems (CSCO)

Cisco Systems is the global leader in high performance computer networking systems. The company’s routers and switches allow networks around the world to connect to each other through the internet. Cisco also offers data center, cloud, and security products.

In the second fiscal quarter, company revenue grew 7.1% to $13.6 billion, which was $190 million above estimates. Adjusted earnings-per-share of $0.88 compared to adjusted earnings-per-share of $0.84 in the prior year and was $0.02 more than expected.

Beginning with the first quarter of fiscal year 2022, Cisco has renamed its business segments. Secure Agile Networks, formerly known as Infrastructure, grew 14%, End-to-End Security, formerly known as Security, improved by 7%, and Optimized Application Experiences was up 11

Future growth will be driven by continued expansion as well as share buybacks. Cisco repurchased 26 million shares at an average price of $47.72 during the quarter. The company’s remaining share repurchase authorization is $13.4 billion, or approximately 6% of the current market cap.

The company expects revenue growth of 11% to 13% for the quarter and adjusted earnings-per-share of $0.96 to $0.98. For fiscal year 2023, Cisco now expects revenue growth of 9% to 10.5%, and adjusted earnings-per-share in a range of $3.73 to $3.79. At the midpoint, this would be a 12% increase from the prior year.

Cisco has increased its dividend for 13 consecutive years. Cisco stock yields 3.2%.

Goldman Sachs (GS)

Goldman Sachs was founded in 1869 and in the 150+ years since, it has grown into one of the world’s leading financial companies, particularly in investment banking. It competes in a wide variety of service activities to a diverse and broad base of global customers. The company trades with a $117 billion market capitalization and should produce about $48 billion in revenue this year.

For the 2023 first quarter, the bank posted better than expected earnings-per-share of $8.79, which was 69 cents ahead of estimates. Revenue declined 5.5% from the year-ago period to $12.22 billion, and missed estimates by $440 million. The bank’s book value ended the quarter at $310.48.

The investment banking and fixed income trading units both reported much lower trading revenue from last year’s Q1. Provisions for credit losses came to a net benefit of $171 million, which was a massive improvement from the charge of $561 million in last year’s Q1.

The dividend has never really been a priority for Goldman but that has changed with the updated payout. The new payout ratio leaves a long runway for future growth. The dividend doubled between 2020 and 2022, so we believe Goldman is now a serious income stock. Goldman’s payout ratio is still just a small fraction of earnings, meaning the dividend is ultra-safe, even after the big increase that was announced in 2021, and for 2022. Shares currently yield 3.1%.

3M Company (MMM)

3M sells more than 60,000 products that are used every day in homes, hospitals, office buildings and schools around the world. It has about 95,000 employees and serves customers in more than 200 countries.

3M is now composed of four separate divisions: Safety & Industrial, Healthcare, Transportation & Electronics, and Consumer. The company has announced that it would be spinning off its Health Care segment into a standalone entity, which would have had $8.6 billion of revenue in 2021. The transaction is expected to close by the end of 2023.

For the 2023 first quarter, revenue declined 9.7% to $7.7 billion, but was $190 million more than expected. Adjusted earnings-per-share of $1.97 compared to $2.65 in the prior year, but was $0.37 more than projected.

Organic growth for the quarter fell 5.6% for the period, due primary to the decline in disposable respirators and the exit of the company’s Russian operations. Health Care had organic growth of 1.4%.

3M is not recession proof, but the company has proven itself to be resilient during the difficult times in the economic cycle. While dividend growth has outpaced earnings growth in recent years, 3M’s dividend track record is virtually second to none.

3M’s innovation is one of the company’s greatest competitive advantages. The company targets R&D spending equivalent to 6% of sales (~$2 billion annually) in order to create new products to meet consumer demand. This spending has proven to be very beneficial to the company as 30% of sales during the last fiscal year were from products that didn’t exist five years ago. 3M’s commitment to developing innovative products has led to a portfolio of more than 100,000 patents.

3M reaffirmed its prior outlook for 2023, with the company still expecting adjusted earnings-per-share in a range of $8.50 to $9.00. MMM stock yields 6%.
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Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.