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Dogs of the Dow is an investment strategy that targets the 10 top-yielding stocks in the Dow Jones Industrial Average (DJIA) for investment each year. Investors following this strategy should reap the benefits of higher yields and above-average stock-price gains.
Popularized by Michael B. O’Higgins in his 1991 book, Beating the Dow, this simple strategy frequently outperforms the DJIA and seems to outperform the index over longer periods of time.
- The strategy is based on the idea that blue-chip companies pay consistent (and increasing) dividends, while their stock prices fluctuate based market conditions so, if the dividend yield is higher than usual, the stock price likely is lower than usual…
The Dow Stocks
- Dow refers to the Dow Jones Industrial Average, a stock market index created by Charles Dow and named after Dow and one of his business associates, statistician Edward Jones.
- The index indicates the value of thirty large, publicly owned companies based in the United States.
- The value of the Dow is the sum of the price of one share of stock for each component company, corrected by a factor that is adjusted whenever one of the component stocks split or pays a dividend.
- The price-weighted approach of determining the index is problematic, as evidenced this week by the significant impact of just one stock’s woes on the index. Boeing (BA) shares closed at $422.60 per share last Friday, March 8, before concerns over the second Boeing 737 crash within five months last Sunday caused the stock to tumble to below $380. For reference, the next highest per share price of a Dow stock is UnitedHealth Group (UNH), which is trading near $250. Despite these issues, the index remains popular and it provides a snapshot of some of the most influential businesses in the world.
…To identify the 2019 Dogs of the Dow, let’s look at a dividend yield chart of the Dow’s component stocks, as of 1 January 2019:
In the chart, the ten Dow stocks with the highest yields on 1 January 2019 are colored green.
The 2019 Dogs of the Dow
Below is a table of the 2019 Dogs of the Dow. The table shows the dividend yields of these stocks on 1 January 2019 (qualifying yield) as well as the year to date (YTD) performance and the current yield of each stock.
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Year to date,
- the Dow is up 9.55%…
- the S&P 500 is up 11.36%.
- In comparison, an equal-weighted portfolio of this year’s Dogs of the Dow is up 9.00%…(The main culprits are PFE and KO, though several other Dogs are lagging the market, too. It would be interesting to see how these stocks perform during the remaining months of 2019.)
The Dogs of the Dow have not outperformed the Dow or the S&P 500 consistently, as can be seen in the following table, courtesy of Money-Zine:
| Year | Dogs |
Dow |
S&P
500 |
| 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% |
…Over the period covered in the table,
- the Dogs averaged 6.63%,
- The Dow averaged 6.54%,
- and the S&P 500 averaged 5.95%
so the Dogs seem to do slightly better than the Dow – and the S&P 500, for that matter – over longer periods of time….
If we selected the Dogs of the Dow today, the picture would be a little different:
…
Valuations
…For investors interested in owning the 2019 Dogs of the Dow, below is a table with several fair value estimates and price targets, a collated fair value estimate, and an indication of price discount or premium. I’m including the two stocks that now are in the top ten yielding Dow stocks, WMT and HD. To determine the collated fair value, I ignore the lowest and highest estimates and targets, and average the median and the mean of the remaining values:
| IBM | XOM | VZ | CVX | PFE | KO | JPM | PG | CSCO | MRK | WBA | HD | ||
| Finbox.io | 148 | 80 | 62 | 160 | 46 | n/a | 94 | 83 | 48 | 86 | 86 | 139 | |
| Morningstar | 158 | 90 | 58 | 136 | 46 | 49 | 111 | 98 | 49 | 75 | 73 | 170 | |
| SSD | 172 | 91 | 53 | 121 | 41 | 50 | 121 | 91 | 45 | 72 | 95 | 258 | |
| Simply Wall St |
156 | 67 | 106 | 280 | 80 | 53 | 107 | 106 | 46 | 98 | 125 | 202 | |
| TipRanks | 150 | 86 | 62 | 136 | 49 | 51 | 118 | 96 | 55 | 87 | 72 | 204 | |
| Value Line | 183 | 110 | 93 | 143 | 55 | 55 | 123 | 118 | 63 | 78 | 115 | 255 | |
| Yahoo! Finance |
140 | 84 | 59 | 137 | 44 | 50 | 116 | 98 | 55 | 86 | 74 | 203 | |
| CFRA | 133 | 78 | 54 | 107 | 34 | 34 | 106 | 82 | 43 | 53 | 75 | 180 | |
| Fair Value Estimate |
154 | 85 | 63 | 138 | 46 | 51 | 113 | 96 | 49 | 81 | 75 | 180 | |
| Current Price | 138 | 80 | 57 | 124 | 42 | 46 | 104 | 100 | 52 | 81 | 61 | 184 | |
| Discount (–) Premium (+) | –10.4% | –5.9% | –9.5% | –10.1% | –8.7% | –9.8% | –8.0% | +4.2% | +6.1% | 0.0% | –18.7% | +2.2% |
…Several 2019 Dogs are trading below fair value, with
- IBM and CVX trading at a discount of at least 10%.
- Also, KO and VZ are trading at a discount of just less than 10%.
- Notice, though, that WBA is trading nearly 19% below fair value.
Concluding Remarks
…In this article, I provided fair value estimates for the Dogs… Several stocks are trading below fair value, providing investors an opportunity to lock in higher yields and the potential of above-average stock-price gains.
Editor’s Note: The above excerpts* from the original article have been edited ([ ]) and abridged (…) for the sake of clarity and brevity. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
(*The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)
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