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Dogs of the Dow

Moneyzine Editor
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Moneyzine Editor
4 mins
January 16th, 2024
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Dogs of the Dow

Dogs of the Dow theory, used as an investment strategy, was first popularized by Michael O'Higgins in his book Beating the Dow, which was published back in 1992. The theory is based on the purchase of high dividend yield stocks that are members of the Dow Jones Industrial Average. This concept is a great follow up to our article on dividend paying stocks, where we explain why certain companies pay higher dividends than others. The term "dogs" refers to the fact these companies have somehow fallen out of favor with the investment community.

Dogs of the Dow Theory

The approach behind this investment method is simple. The Dow Jones Industrials is a prestigious list of 30 blue chip stocks. Sorting these stocks to find the ten companies with the highest dividend yield will produce a list of companies that are undervalued relative to their peers. By refreshing the list each year, there is a chance that new "dogs" will be picked. These are the stocks that stand the greatest opportunity to catch up with their peers, thereby outperforming the DJIA. O'Higgins examined their performance by looking at the annual returns of these sets of stocks over a 17-year timeframe. He compared the performance of a portfolio of ten stocks with that of the rest of the Industrials Index. He found the average annual return for the Dogs of the Dow was 17.9%, compared to 11.1% for the rest of the Dow. To summarize, in this theory we have a combination of large cap stocks, paying high dividend yields, which seem to be undervalued relative to their peers.

Choosing the Dogs of the Dow

Each year, a new portfolio of stocks is chosen, using the closing price on the last day of trading for the previous year. Some of the stocks might remain the same; some companies will be replaced by new dogs. Investors purchasing this portfolio are supposed to allocate 10% of their investment dollars to each stock. This means a different number of shares for each company are bought, since their market prices will be different. Fortunately, several mutual funds have responded to the popularity of this investment strategy, and it's possible to purchase mutual funds that follow the Dogs of the Dow Theory.

The term "dogs" refers to the fact these companies have somehow fallen out of favour with the investment community
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Recent Returns

In recent years, the performance of these dogs has not fared quite as well as the time period examine by O'Higgins (1973 to 1989). For example, they’ve only beaten the S&P 500 Index three times in the last five years. The dogs have also been outpaced by the Dow Jones Industrial Average three times in the last five years. Below is a table illustrating the relative performance of this group for the years 2000 through 2020.

Historical Performance

Year

Dogs

DJIA

S&P 500

2020

-12.6%

7.2%

18.4%

2019

15.5%

22.3%

31.5%

2018

0.0%

-3.7%

-4.6%

2017

19.4%

25.1%

18.9%

2016

16.1%

13.4%

9.5%

2015

-1.2%

-2.2%

-0.9%

2014

7.0%

7.5%

11.4%

2013

30.3%

28.1%

31.8%

2012

5.7%

7.3%

13.4%

2011

12.2%

5.5%

0.0%

2010

15.5%

11.0%

12.8%

2009

12.9%

18.8%

23.5%

2008

-41.6%

-33.5%

-38.5%

2007

-1.4%

6.4%

3.5%

2006

30.3%

19.1%

15.8%

2005

-5.1%

1.7%

4.9%

2004

4.4%

5.3%

10.9%

2003

28.7%

28.3%

28.7%

2002

-8.9%

-15.0%

-22.1%

2001

-4.9%

-5.4%

-11.9%

2000

6.4%

-4.7%

-9.2%

The above table demonstrates that 2020 was a bad year for this group. The Dogs of the Dow were outpaced by both the S&P 500 and the DJIA.

Dogs of the Dow Portfolios

Now that we've explained the investment theory, and provided information on relative performance, it's time to share the Dogs of the Dow for 2021. Remember, this list is based on the closing performance for 2020. The next group of stocks will be published after the last trading day of the year. For reference, we've listed below the Dogs of the Dow for the last five years.

Dogs of the Dow 2021

Stock Symbol

Company Name

2020 Close

Dividend Yield

CVX

Chevron

84.45

6.11%

IBM

International Business Machines

125.88

5.18%

DOW

Dow

55.5

5.05%

WBA

Walgreens

39.88

4.69%

VZ

Verizon

58.75

4.27%

MMM

3M

174.79

3.36%

CSCO

Cisco

44.39

3.24%

MRK

Merck

81.8

3.18%

AMGN

Amgen

229.92

3.06%

KO

Coca-Cola

54.84

2.99%

Dogs of the Dow 2020

Stock Symbol

Company Name

2019 Close

Dividend Yield

DOW

Dow

54.73

5.12%

XOM

ExxonMobil

69.78

4.99%

IBM

International Business Machines

134.04

4.83%

VZ

Verizon

61.4

4.01%

CVX

Chevron

120.51

3.95%

PFE

Pfizer

39.18

3.88%

MMM

3M

176.42

3.26%

WBA

Walgreens

58.96

3.10%

CSCO

Cisco

47.96

2.92%

KO

Coca-Cola

55.35

2.89%

Dogs of the Dow 2019

Stock Symbol

Company Name

2018 Close

Dividend Yield

IBM

International Business Machines

113.67

5.52%

XOM

ExxonMobil

68.19

4.81%

VZ

Verizon Communications

56.22

4.29%

CVX

Chevron

108.79

4.12%

PFE

Pfizer

43.65

3.30%

KO

Coca-Cola

47.35

3.29%

JPM

JP Morgan Chase

97.62

3.28%

PG

Procter & Gamble

91.92

3.12%

CSCO

Cisco Systems

43.33

3.05%

MRK

Merck

76.41

2.88%

Dogs of the Dow 2018

Stock Symbol

Company Name

2017 Close

Dividend Yield

VZ

Verizon Communications

52.93

4.46%

IBM

International Business Machines

153.42

3.91%

PFE

Pfizer

36.22

3.75%

XOM

ExxonMobil

83.64

3.68%

CVX

Chevron

125.19

3.45%

MRK

Merck

56.27

3.41%

KO

Coca-Cola

45.88

3.23%

CSCO

Cisco Systems

38.3

3.03%

PG

Procter & Gamble

91.88

3.00%

GE

General Electric

17.45

2.75%

Dogs of the Dow 2017

Stock Symbol

Company Name

2016 Close

Dividend Yield

VZ

Verizon Communications

53.38

4.33%

PFE

Pfizer

32.48

3.94%

CVX

Chevron

117.7

3.65%

CSCO

Cisco Systems

30.22

3.44%

BA

Boeing

155.68

3.65%

KO

Coca-Cola

41.46

3.38%

IBM

International Business Machines

165.99

3.37%

XOM

ExxonMobil

90.26

3.32%

CAT

Caterpillar

92.74

3.32%

MRK

Merck

58.87

3.19%

Additional Resources

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  • Dogs of the Dow 2021
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  • In this article, we're going to talk about a class of stocks that are frequently mentioned in the news, but not always completely understood. In the United States, investors often associate penny stocks with issues that are not traded on one of the more prestigious stock exchanges; but that's not the complete story.
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