Yet for some investors, the prospect of owning solid stocks with an average dividend yield of 4.4% is too good to pass up. Regardless of whether the Dogs of the Dow outperform the stock market in 2023, many will find that the simple strategy gives them an easy way to get market exposure without a lot of hassle. You can see the value emphasis in the Dogs of the Dow strategy from the dividend stocks that joined and left the list in 2023. Merck (MRK +1.69%) had a huge year, with its stock jumping 45% as prospects for several of its approved and pipeline drugs improved dramatically in 2022. The soaring share price sent Merck’s dividend yield down almost a full percentage point. Similarly, Coca-Cola (KO +0.53%) stock rose 8% on strong investor appetite for consumer staples stocks.
Performance of Dogs of the Dow and Small Dogs for 2021 was approximately 14.5% and 15.1% respectively. It was a good year for the Dow 10 and Dow 5 considering the pandemic and the strategy basics. Unlike the ETF sector rotation where we rebalance on a quarterly basis, the Dow 10 and Dow 5 are only rebalanced once a year. Another analysis of returns from 2008 to 2018 indicates the strategy generally works. For example, in 2008, the Dogs of the Dow would have underperformed the DJIA.
Dogs of the Dow: A Proven Strategy for Steady Dividend Income
This return is compared to the average annual returns of ~7.9% for the Dow 30 during the same period. In addition, the S&P 500 Index has returned ~7.6% in the same stretch. Notably, this period includes the dot-com bust, the Great Recession caused by the sub-prime mortgage crisis, the bear market during the early stages of the COVID-19 pandemic, and the 2022 bear market. The Dogs of the Dow strategy assumes blue-chip companies do not change their dividend to reflect the normal business cycle. Hence, high yields and low stock prices should mean that a company is at the bottom of the business cycle, while low yields and high stock prices should mean a company is near the top of the business cycle. The Dogs of the Dow strategy has the potential to generate solid returns over the long term.
The Dogs of the Dow 2023, a time-honored strategy, involves identifying the 10 highest-yielding stocks from the esteemed Dow Jones Industrial Average. This strategy’s essence lies in its pursuit of dividend income, making it a popular choice for investors seeking consistent income and capital gains. The Dogs of the Dow strategy involves selecting stocks with high dividend yields and low P/E ratios, aiming for undervalued companies with growth potential.
Walgreens Boots Alliance
That said, the actual trading and rebalancing are limited to a small part of the calendar year. The strategy maximizes yield in a relatively small universe of 30 blue-chip stocks. Furthermore, the strategy can lead to a concentrated portfolio in a limited number of sectors, especially if one sector is out of favor, e.g., oil majors during the COVID-19 pandemic. The index is price-weighted, unlike most other indices that are weighted by market capitalization. This fact means that stocks with higher share prices are given greater weight in the index. The Dow Jones is calculated as the sum of the stock prices of all 30 companies divided by a factor known as the Dow Divisor.
Dogs of the Dow: Definition, List of Stocks, Performance
Today, the Technology, Financials, and Healthcare sectors have a significant representation in the Dow 30. The index was created to track the market performance of leading industrial stocks in an era when the availability of information was limited. So, if you are going to buy VZ, buy it for a dividend that can keep you even with the broad market indexes. Capital appreciation may be part of the picture, but there is no immediate visibility on it. If you adhere to the Dogs of the Dow strategy, you may likely find you will be overturning your position in VZ come this time next year. Remember, it was just three years ago that Dow was spun out of DuPont (DD), and is still finding its sea legs.
How the Dogs of the Dow Strategy Works
- The Dogs of the Dow is an investing strategy well-known to retail and institutional investors.
- After all, Alphabet’s (GOOGL) Google and Microsoft (MSFT) are swimming in the same pond.
- The Dogs of the Dow strategy involves selecting stocks with high dividend yields and low P/E ratios, aiming for undervalued companies with growth potential.
- In its latest earnings report, IBM said it expects revenue growth “above its mid-single digit model,” with currency translation presenting a seven percentage point hit.
Two new stocks, Coca-Cola (KO) and Johnson & Johnson (JNJ), were added to the Dogs of the Dow list for 2024, replacing Intel (INTC) and JP Morgan Chase & Co. (JPM). The Dogs of the Dow strategy sounds simple, but it takes some effort, like most things related to portfolio management. Like most do-it-yourself (DIY) strategies, there is an active element.
JPMorgan Chase
With a lot of overseas business, the historically strong dollar currently delivers a big hit to IBM’s revenues, and growth is better than the reported numbers. In its latest earnings report, IBM said it expects revenue growth “above its mid-single digit model,” with currency translation presenting a seven percentage point hit. 2023 proved to be a challenging year for the “Dogs of the Dow” strategy, as it underperformed the Dow Jones Industrial Average index. The strategy yielded a respectable gain of 10.1%, yet it fell short of the index’s impressive 14.4% return.
It underperformed the S&P 500 in 2021 by 16 percentage points and so far this year, the Dogs are down less than the market at large. This year’s crop of Dogs seems to face thornier problems than in years past. Despite its potential benefits, the Dogs of the Dow strategy is not without its risks, which prudent investors should be aware of. We can’t retire off of 4.5% in annual yield—a “perfect” amount of portfolio income is closer to 7%. Even if we put a million bucks to work on the Dogs, we’d still only be netting $45,000 a year.
- For example, the current dividend yield of Chevron is 3.5%, while the current dividend yield of Walgreens Boots Alliance is 4.6%.
- The “Dogs of the Dow” strategy’s allure lies in its focus on undervalued dividend-yielding stocks.
- Verizon sports an eye-popping $136 billion in debt, but is a strong enough credit to be able to refinance this out into the future ad infinitum.
- However, the strategy’s performance in 2023 has been mixed, prompting questions about its continued efficacy.
- Dow (DOW, $50.07) is in the doghouse, and perhaps well it should be given declines and lumpiness in earnings.
Rising interest rates, for example, can make bonds and other fixed-income investments more attractive, potentially leading to lower demand for high-yielding stocks. Additionally, geopolitical uncertainties and supply chain disruptions can impact the profitability and, consequently, the dividend yields of the selected companies. The Dogs of the Dow strategy involves investing in the top 10 highest-yielding stocks in the Dow Jones Industrial Average (DJIA). These stocks are selected based on their dividend yield, which is calculated by dividing the annual dividend per share by the current market price of the stock.
Recently reported third-quarter earnings were mixed, neither confirming recovery nor presaging disaster. These companies are all well-established and have a long history of paying dividends. They also have strong businesses and are expected to continue to grow in the years to come. For most nonprofessionals, though, investing is never that simple, especially with the myriad of strategies out there. So, it behooves the average individual investor to understand what they are doing with their money.
This underperformance can be attributed to various factors, including the broader market’s resilience and the specific composition of the “Dogs of the Dow” portfolio in 2023. From 2013 to 2023, the Dogs of the Dow had a trailing total return of 10.02% compared to a 11.48% trailing total return of the Dow Jones Industrial Average (DJIA). Verizon sports an eye-popping $136 billion in debt, but is a strong enough credit to be able to refinance this out into the future ad infinitum. For this reason, and its strong cash flows, Value Line rates the stock A++ for financial strength, a designation that no other telecom has, including AT&T (T). Intel (INTC, $29.87) has been one of the most severely hit names in a terrible year for the tech sector. The stock is down 42% for the year-to-date, following a disappointing second-quarter performance where its EPS was off 79% year-over-year, and revenue dropped 17%.
How to follow the Dogs of the Dow strategy
There’s a lot of uncertainty about how 2023 will go for stock investors. Fears of a recession have many investors gravitating toward value and dividend stocks once again. While the Dogs of the Dow strategy has historically outperformed the broader market, 2023 presented a different scenario. The strategy experienced underperformance, underscoring the inherent volatility and unpredictability of market conditions. This underperformance highlights the significance of diversifying investments and not relying solely on a single strategy or asset class.
However, it is important to note that the strategy is not without risk. The Dogs of the Dow are typically value stocks, and they can be more volatile than growth dogs of the dow 2023 stocks. As a result, investors should be prepared for the possibility of short-term losses.
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