Dogs of the Dow
Over the past few years we have written about the popular stock strategy called the “Dogs of the Dow.” This is a rule-based stock picking approach that invests equal dollar amounts in the ten highest yielding Dow stocks, holding them for 12 months, and then rebalancing the portfolio, selling those stocks that are no longer among the highest yielding, and replacing them with those that are. Here is the rationale behind this approach. Since these large Dow companies try to maintain a consistent and rising dividend, even in difficult times, becoming the highest dividend yielders usually means their stock price has fallen, reflecting earnings or market problems. Yet the size of these companies suggests that typically (not always) they have the resources to see themselves through a difficult period and eventually rebound, providing both income and investment gains.
This strategy was particularly successful in 2011, giving a total return of over 17% including dividends. Total return in 2012 was 5.7%, 35%, in 2013, and 12.75%. in 2014. While the strategy lost a little over a percent in 2015, dragged down by big losses in Caterpillar and Exxon Mobil, the Dogs in 2016 managed to gain an average of 16%. making it the sixth year out of seven that the strategy has beaten the market benchmark. For 2017 the average dividend yield for this strategy is about 3.6%.and the Dogs are, in order of dividend yield: Verizon (VZ), Pfizer (PFE) Chevron (CVX), Boeing (BA), Cisco Systems (CSCO), Caterpillar (CAT), Coca-Cola (KO), International Business Machines (IBM), Exxon Mobil (XOM), and Merck (MRK). 1/20/17