Betting on More Rate Cuts, Boomers Are Buying the 2026 Small Dogs of the Dow

• The Small Dogs strategy has historically outperformed the broader Dow since 2000, particularly excelling in tough markets like 2008 and 2022 by providing stability and high dividend income
• Investors expect two more Fed rate cuts in 2026, following leadership changes at the Federal Reserve, which historically benefits high-yield value stocks over growth stocks
• The five Small Dogs span defensive sectors—telecom (Verizon at 9.1x earnings), energy (Chevron with AA credit rating), healthcare (Merck down 30% year-over-year), consumer staples (P&G with 185-year dividend history), and biotech (Amgen in biosimilars)

Market Summary: Small Dogs of the Dow Strategy Gains Favor in 2026

Key Investment Strategy

Baby Boomer investors are increasingly turning to the "Small Dogs of the Dow" strategy—the five highest-yielding dividend stocks from the Dow Jones Industrial Average—anticipating additional Federal Reserve rate cuts in 2026. Following three rate cuts in 2025, analysts expect two more cuts this year, potentially under new Fed leadership.

Market Context

The S&P 500 currently trades at elevated valuations: 31x trailing earnings and 24x forward earnings. With midterm elections approaching and heightened volatility expected, investors are seeking defensive positions in stable, high-yield blue-chip stocks. The Dogs of Dow strategy has historically outperformed during tough markets (2008, 2022) and since 2000 has beaten the broader Dow by several percentage points annually.

2026 Small Dogs Portfolio

Verizon (VZ): 6.82% dividend yield, trading at 9.13x 2026 earnings. Strong interest coverage ratio (4.6x-5.0x) with predictable telecom revenue streams. TD Cowen target: $51.

Chevron (CVX): 4.58% yield with recent 5% dividend increase. AA-rated credit, diversified operations. Wells Fargo target: $196.

Merck (MRK): 3.02% yield, down 30% over past year despite strong pharmaceutical and vaccine portfolio. BMO Capital Markets rates Outperform.

Procter & Gamble (PG): Paid dividends for 135+ consecutive years across beauty, grooming, and consumer goods segments. Jefferies target: $179.

Amgen (AMGN): 2.83% yield, focused on biosimilars growth potential. HSBC target: $425.

Investment Thesis

These defensive, high-dividend stocks offer reliable passive income and capital protection during market uncertainty while maintaining growth potential.