Dogs of the Dow for the Dog Days of Summer

With the Dow coming off of a historic winning streak last week, below we check in on performance of the index versus the Dogs of the Dow. The Dogs of a Dow is a stock-picking strategy that invests in the index members with the highest dividend yields at the end of a year holds them through the end of the next year.  On a total return basis, the Dow’s recent winning streak has been a benefit to both the overall index and the Dogs alike. That said, the gains to the former have brought the index up near 2022 highs on a total return basis while the Dogs of the Dow has much further to go given the overall weakness of dividend-oriented equities recently.

In the table below, we show the returns of this year’s Dogs of the Dow and all other individual Dow members.  The Dogs of the Dow are host to some of the stocks with the worst performance this year like Verizon (VZ) and Chevron (CVX), however, there are also a couple of big winners like Intel (INTC) which has returned nearly 42% YTD or JPMorgan Chase (JPM) which has nearly posted a 20% return. However, the biggest gains in the index have come from non-Dogs.  In fact, the largest gains this year have been from those with the lowest or no dividend yields at the end of last year like Boeing (BA), Salesforce (CRM), or Apple (AAPL).

 

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Dogs of the Dow Dominating

At the end of last year, we highlight the performance of the “Dogs of the Dow” in 2021.  The Dogs of the Dow is a simple strategy that says to buy the ten highest yielding stocks in the Dow at the end of each year.  In 2021, the Dogs underperformed, but so far in the new year, the complete opposite is true.  As shown below, a little more than half of the Dogs are in the black year to date compared to only three (of twenty) non-dogs that are positive.

Taking a look at an index of the Dogs of the Dow going back to 2001, this year has marked the widest gap in returns between the Dogs and the broad Dow 30 through the first 18 trading days of the year. The only year that comes anywhere close to the gap in performance was 2008, and unlike this year, back then the Dogs were in the red at this point of the year.  Click here to view Bespoke’s premium membership options.

Dogs of the Dow End of 2021 Update

The Dogs of the Dow is a very simple and passive strategy with the basic concept being to buy the ten highest yielders of the Dow 30 at year’s end and repeating the process annually. In 2021, the only Dog of the Dow that did not finish the year higher was Verizon (VZ) which shed 7.53% on a total return basis.  On average across these names, the strategy would have returned 16.3%. That compares to a 20.69% return for the rest of the index. As we close out 2021, the only change to the Dogs of 2021 for next year is that Cisco (CSCO) which now yields 2.33% will drop out and be replaced by Intel (INTC) with its yield of 2.70%.

In the chart below, we show the cumulative total return of this strategy versus holding the entirety of the Dow going back over the past twenty years. Historically, the Dogs have tended to outperform the broader index, but since the pandemic hit, that has not been the case.  Not only have the non-dogs been outpacing the highest yielding stocks in the index, but the dogs of the Dow have yet to break out (though they are getting close after the past few day’s rally) from the range that has been in place since early June. Click here to view Bespoke’s premium membership options.

Dogs of the Dow Performance So Far in 2020

The average stock in the Dow Jones Industrial Average is down 16.24% on a total return basis so far in 2020.  Below we take a look at how the “Dogs of the Dow” strategy has performed so far this year.

The “Dogs of the Dow” strategy is a very passive approach that simply says to buy the 10 stocks in the Dow 30 that have the highest dividend yields at the start of each year.  The Dogs list for 2020 was led by Dow Inc. (DOW) with a yield of 5.12% on January 1st.  Exxon Mobil (XOM), IBM, Verizon (VZ), Chevron (CVX), Pfizer (PFE), 3M (MMM), Walgreens (WBA), Cisco (CSCO), and Coca-Cola (KO) are the nine other members of the Dogs for 2020.

As shown in the table below, the Dogs are down an average of 19.37% on a total return basis in 2020, which is a little less than five percentage points worse than the 14.68% decline seen for the 20 non-Dogs this year.  Dow Inc. (DOW) and Exxon Mobil (XOM) have been the two worst performing Dogs with respective YTD declines of 39.9% and 37.0%.  Dow’s dividend yield has risen from 5.12% up to 8.47%, while XOM’s yield has risen from 4.99% up to 7.91%.  There are no Dogs that are up on the year, but Verizon (VZ) and Pfizer (PFE) have been the best performers of the group with YTD declines of less than 5%.

Of the non-Dogs, Boeing (BA) has been by far the worst performer with a YTD decline of 60.01%.  At the start of 2020, BA had a dividend yield of 2.52%, but that dividend has been suspended.  JP Morgan (JPM), American Express (AXP) and Disney (DIS) have all fallen more than 30% YTD, while Johnson & Johnson (JNJ), Walmart (WMT), and Microsoft (MSFT) are the only three Dow stocks that are up on the year.  Read our weekly Bespoke Report newsletter released every Friday with a two-week free trial to Bespoke Premium.

2019 and 2020 Dogs of the Dow

The Dogs of the Dow strategy is a simple, hands-off investment approach that says to buy the 10 highest yielding stocks in the Dow 30 at the start of each year.  With the calendar turning over from 2019 to 2020, below is a look at how the Dogs strategy performed in 2019.  As shown, the 10 Dogs posted a total return of 19.38% in 2019, which was below the 25% return for the Dow and well below the 28% that the 20 non-Dogs returned.  The biggest winner in the Dogs in 2019 was JP Morgan (JPM) with a gain of 47.27%, but Pfizer’s (PFE) decline of 6.92% really hurt overall performance.

The 20 non-Dogs were led by Apple (AAPL), Microsoft (MSFT), Visa (V), and United Tech (UTX), while Walgreens Boots (WBA) and 3M (MMM) were the two non-Dogs that fell in 2019.  Start a two-week free trial to Bespoke Institutional to access our Trend Analyzer tool and track key trends in individual stocks and major ETFs.

Moving on to 2020, below is a list of this year’s Dogs of the Dow.  Eight of the ten Dogs from 2019 remain on the list, while 3M (MMM) and Walgreens Boots (WBA) — the two non-Dogs that fell in 2019 — have replaced JP Morgan (JPM) and Procter & Gamble (PG) — the two biggest gainers of the Dogs in 2019.  Dow Inc. (DOW) is the highest yielding Dog at 5.12%, followed by Exxon (XOM), IBM, and Verizon (VZ), which all have dividend yields above 4%.