The Big Picture
2022 has not been a good year for the stock market. In fact, it has been annus horribilis. As of this writing, the Nasdaq Composite is down 31.9%, the Russell 2000 is down 22.1%, the S&P is down 19.5%, the S&P Midcap 400 is down 15.4%, and the Dow Jones Industrial Average is down 10.0%.
A 10% decline for the Dow Jones Industrial Average isn't cause for celebration in an absolute sense, but it is in a relative sense. What has also been cause for celebration is the average total return of the 2022 Dogs of the Dow.
Stronger Together
The Dogs of the Dow are the ten Dow Jones Industrial Average components with the highest dividend yield. Sometimes those high dividend yields are the result of falling stock prices while other times they are simply a case of a stock having a high dividend yield.
It is a pretty simple process for investing in a Dogs of the Dow portfolio. After the market closes on the last day of the year, identify the ten highest-yielding Dow stocks, and then buy them at the start of the year investing an equal dollar amount in each of the stocks. Hold the stocks for a year and repeat the process at the end of the next year.
A variation of the strategy is to buy the five lowest-priced of the ten highest-yielding Dow stocks. These are called the "Small Dogs of the Dow." Again, one would purchase them at the start of the year, investing an equal dollar amount, and hold them for a year.
The table below provides a snapshot of the 2022 Dogs of the Dow. Individually, there have been some real dogs in the bunch, but collectively, they have vastly outperformed the market with an average total return of 0.3% versus -17.0% for the S&P 500. The Small Dogs of the Dow are in blue.
| Stock | Symbol | Price | 2022 Total Return (%) |
|---|---|---|---|
| Dow, Inc. | DOW | 49.07 | -9.2 |
| IBM | IBM | 139.11 | 9.3 |
| Verizon | VZ | 36.84 | -25.2 |
| Chevron | CVX | 167.90 | 48.3 |
| Walgreens Boots Alliance | WBA | 38.70 | -22.3 |
| Merck | MRK | 108.96 | 46.7 |
| Amgen | AMGN | 266.83 | 22.4 |
| 3M | MMM | 120.52 | -29.3 |
| Coca-Cola | KO | 62.48 | 8.6 |
| Intel | INTC | 26.53 | -46.5 |
Source: FactSet
Less than Average
The website dogsofthedow.com offers an insightful look at the historical performance of the Dow Dogs and the process for carrying out this investment strategy.
Past performance is no guarantee of future results, yet the strategy has a decent track record.
Since 2000, the Dogs of the Dow has had an average annual total return of 8.7% and the Small Dogs of the Dow has had an average annual total return of 9.3%, according to dogsofthedow.com. The 2022 Dogs of the Dow portfolio, then, has been less than average, yet it has clearly fared much better than the broader market. The Small Dogs of the Dow portfolio has not with an average total return of -18.9%.
There are still nine trading days left in 2022, but an early glimpse of a Dogs of the Dow portfolio for 2023 is included in the table below. The Small Dogs of the Dow are in blue. They are the same, with the exception of Cisco, which has replaced Coca-Cola in that projected grouping.
| Stock | Symbol | Price | Dividend Yield (%) |
|---|---|---|---|
| Verizon | VZ | 36.86 | 6.9 |
| Dow, Inc. | DOW | 49.07 | 5.7 |
| Intel | INTC | 26.54 | 5.5 |
| Walgreens Boots Alliance | WBA | 38.72 | 5.0 |
| 3M | MMM | 120.41 | 4.9 |
| IBM | IBM | 139.34 | 4.7 |
| Chevron | CVX | 167.92 | 3.4 |
| Amgen | AMGN | 267.00 | 3.2 |
| Cisco | CSCO | 47.61 | 3.2 |
| JPMorgan Chase | JPM | 128.73 | 3.1 |
Source: FactSet
We will post a final Dogs of the Dow for 2023 portfolio at the end of trading on Friday, December 30, to our In Play page.
We will reserve this space that day for our annual "Year in Review."
Happy holidays!
--Patrick J. O'Hare, Briefing.com
(Editor's Note: the next installment of The Big Picture will be the Year in Review on December 30)
