Dogs of the Dow
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 Dogs strategy has two advantages. First, these stocks provide an excellent dividend yield. Second, the stocks of these high-quality companies are often depressed for reasons that prove temporary, and there are usually one or two of the stocks that significantly outperform.
The Dogs strategy tends to work best when stock market gains are limited or when the market dips.
They are called the Dogs for a reason - these are stocks that have been depressed in value, often because the businesses are beset by some temporary problems. When the stock market is rallying strongly, the Dogs approach often underperforms because growth stocks rise more sharply than these less-volatile stocks.
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 return of 9.5% and the Small Dogs of the Dow has had an average annual return of 10%, according to dogsofthedow.com.
Below are the 10 Dow stocks that qualify for a 2022 Dogs of the Dow portfolio with price/yield indications (the "small dogs" are in red):
- Dow, Inc. (DOW 56.71/4.91%)
- IBM (IBM 133.63/4.90%)
- Verizon (VZ 51.97/4.89%)
- Chevron (CVX 117.36/4.54%)
- Walgreens Boots Alliance (WBA 52.16/3.67%)
- Merck (MRK 76.63/3.58%)
- Amgen (AMGN 224.97/3.41%)
- 3M (MMM 177.59/3.33%)
- Coca-Cola (KO 59.22/2.86%)
- Intel (INTC 51.50/2.68%)
