Because this is intended to be a low-maintenance, long-term strategy that mimics the performance of the DJIA, it shouldn’t be surprising that the long-term results are similar. There have been years when the Dow has outperformed the Dogs and vice-versa, but its performance over time is impressive. 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.
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Hold the portfolio for a year, then repeat the process at the beginning of each subsequent year. The idea is to make stock picking somewhat easy and relatively safe, the latter because the universe is limited to blue-chip stocks. As a tactic, Dogs of the Dow goes like this—after the stock market closes on the last day of the year, select the 10-highest dividend-yielding stocks in the DJIA. How this handful of stocks performs carries extra impact on the S&P 500 and other indexes because they’re by far the market’s most valuable companies.
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Though the Dow of Dogs has slightly underperformed the DJIA in the past 10 years, it still works as a good dividend strategy if investors are looking for fixed payments in their portfolio. If investors are looking for pure returns, then the DJIA or the S&P 500 work as a better overall investment for the long term. Then, on the first trading day of the new year, invest an equal dollar amount in each of them.
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- First and foremost, you would focus on the dividend yields of the selected stocks, ranging from 7.49% for Verizon’s dividend yield to 2.72% for JP Morgan Chase’s dividend yield.
- In the last five years, from 2018 to 2023, however, the Dogs have trailed the DJIA with a wider gap, turning in trailing total returns of 5.29% compared to the DJIA’s trailing total return of 8.39%.
- With the underperformance, the Dogs of the Dow strategy has now done worse than the broader Dow Jones Industrials in four years out of the last five.
- Of course, markets have been quick to turn over the past week regardless of any long-term predictions.
An empty Russian capsule was sent up to bring them back last September. Both indexes were on track for their worst days in just over a week, FactSet data showed. The Dow Jones Industrial Average was down 630 points — 1.5% — in recent trading, leaving it on track for its worst day since March 22, 2023, when the blue-chip average fell 1.63%, according to Dow Jones Market Data.
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The most recent earnings report from Dow might give investors confidence that it is on the upswing, with the company beating the consensus earnings estimate. However, keep in mind, the total net income was off 55% from a year ago. The nine-month performance was a little more upbeat, with net income off just 14%.
Verizon Communications
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Investors following this strategy typically seek a reliable income stream, so you would assess whether the chosen stocks delivered on this front. Dogs of the Dow relies on the premise that blue-chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company. In contrast, the stock price does fluctuate throughout the business cycle. All this suggests that buying VZ now requires faith that it can maintain its dividend. A look at the cash flows for the first six months of the year shows about $5.4 billion in dividends paid, which was covered more than three times over by almost $18 billion in cash flow from operations.
Though welcome, it feels like Lucy might be yanking the football from Charlie Brown. Cisco Systems (CSCO 1.57%) got caught up in the tech downturn, and even though its 25% drop was small compared to those of many of its peers, it was enough to boost its dividend yield nearly a percentage point to 3.2%. Similarly, JPMorgan Chase (JPM 1.83%) shares suffered when a combination of rising interest rates and the tough market environment for investment banking dealt the financial giant a double whammy.
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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 1.27%) 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 0.39%) stock rose 8% on strong investor appetite for consumer staples stocks.
If you choose to keep investing in the Dogs of the Dow, you’ll need to replace any stocks that are no longer among the 10 highest-yielding Dow dividend stocks and purchase shares of any new stocks on the list. You’ll also need to rebalance your holdings of stocks that stay on the Dogs list to get back to equal weightings. Looking at an example of the Dogs of the Dow strategy means analyzing the Dogs of Dogs of the dow 2023 the Dow at any given time, and several critical factors come into play. First and foremost, you would focus on the dividend yields of the selected stocks, ranging from 7.49% for Verizon’s dividend yield to 2.72% for JP Morgan Chase’s dividend yield. High dividend yields are a primary criterion for inclusion in the Dogs of the Dow, so assessing whether each stock meets this requirement is essential.
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