What’s old is new again the Dogs of the Dow are outperforming the stock market

Few strategies are easier than the Dogs of the Dow in terms of implementation. On the last trading day of the year, you take the dividend yields of all 30 Dow stocks. From there, put the stocks in order and take the 10 highest-yielding ones. Then, buy equal dollar amounts of all 10 stocks and keep them in your portfolio throughout the following year. That’s all you have to do until the end of the following year, when you repeat the process. Therefore, the Dogs of the Dow investment strategy selects stocks with a high dividend yield and are theoretically near the bottom of their business cycle.

While stocks pass the Dogs of the Dow screen because of their high current dividend yield relative to other Dow stocks, a study of the company’s historical dividend yield can be equally revealing. A current dividend yield that is higher than its historical average would be a sign that a stock is potentially undervalued. The theory behind Dogs of the Dow is a high yield implies that a stock is undervalued relative to the other Dow stocks. Investors often seek to purchase supposedly out-of-favor, high-yielding stocks whose relative yields suggest that their valuations are underpriced.

Dogs Of The Dow 2022 – Strategy And Backtest

Dow Inc. is yielding 4.7%, more than twice the yield of the S&P 500 index at large, and investors should take this into account. A robust economy might return Dow shares to higher levels, but there are other forces at play to keep in mind. At $2.80, twice anticipated 2020 earnings and less than Value Line’s forecast for 2021. Remember, Dow is a relatively “young” company owing to its April 2019 spin-off of the company from DowDuPont. As such, management may be wont to cut their dividend, but then again, with little in the way of precedent, maybe they would, which would be a blow to shares in 2021. Anticipated cash flow per share for 2020 is $5.15 though, indicating that for now, there’s breathing room.

Its focus on dividend stocks also makes it compelling to investors looking for income. The Dogs of the Dow strategy has gained in popularity since Michael O’Higgins’ book, Beating the Dow, was first published in 1991. The underlying thesis is that these «dogs» are often down for short-term reasons, and the market’s overreaction has created an opportunity for contrarian investors.

Amgen

Malkiel questions if the method can truly contradict the random walk hypothesis and efficient market hypothesis after transaction costs. O’Higgins and others back-tested the strategy as far back as the 1920s and found that investing in the Dogs consistently outperformed the market as a whole. Since that time, the data shows that the Dogs of the Dow as well as the popular variant, the Small Dogs of the Dow, have performed well. Schneider was published in The Journal of Finance in 1951, based on selecting stocks by their price–earnings ratio. If you would like to see how the highest dividend paying stocks of the Dogs of the Dow are doing, check out the official 2023 Dogs of the Dow, and track them with our Dogs of the Dow performance tables.

As this illustrates, the Dogs of the Dow portfolio strategy can result in widely divergent results from year to year. Moreover, there are more consequences investors must consider before adopting this strategy, especially regarding taxes. The results in 2019 and 2020 were not favorable, with the Dogs of the Dow portfolio generating 18.7% and (7.9%) in total returns respectively, while the Dow returned 25.3% and 9.7% in those years.

What Crisis? 10 Banks Rake It In As Profits Soar, Analysts Say

This year will be remembered by most investors as marking the start of a bear market, but it was also a big moment for the stocks some refer to as dogs. The Dogs of the Dow strategy proved to be a winner in 2022, as investors turned away from growth stocks and looked instead for value companies and dividends. Given the challenges facing the global economy in 2023, their run might not be over yet. The old-school strategy is simple — take the 30 stocks in the Dow Jones Industrial Average and buy the 10 with the highest dividend yield, or dividend paid compared with share price.

«We like energy, and we like health care. Both of those trades worked really well in 2022, and we think they’ll continue to do well in 2023,» Simpson said. Stocks with solid dividend yields could perform better when interest rates are rising, thus driving down the value of bonds, Simpson said. “Dividends, especially in really mature, blue-chip, well-established companies, can be a true proxy for income,” he said. Under other analysis these stocks could be considered “dogs”, or undesirable, as companies often raise their dividend in response to bad news or a decline in share price.

Best Travel Insurance Companies

Just browse the internet to see Dogs of the Dow opinions, commentary, analyses, calculators, charts, forecasts, and stock screeners. Often, in fact, the Dogs have been able to outperform the Dow over the course of the year. 2021’s underperformance marked the third straight year of the Dogs losing to the broader Dow.

The strategy is to focus on the dogs, with the idea being that they’re near the bottom of their business cycles and are poised to bounce back. There’s absolutely no guarantee the shares of the Dogs will bark again this year. But if high dividends stay in fashion with investors again this year, these stocks will at least have one trait in high demand. That’s miles ahead of the S&P 500’s nearly 20% drop and much better than the 8.8% drop by the Dow Jones. Company-wide revenue of $16,690M was flat from the prior year, while diluted adjusted earnings per share rose 7% to $3.60 from $3.35 year-over-year.

Some studies find mixed or negative results for the method, but application of the method to international markets confirmed the Dogs of the Dow method may offer superior long-term results. The Dogs of the Dow is an investment strategy popularized by Michael B. O’Higgins in a 1991 book and his Dogs of the Dow website. «The challenge with this methodology is it focuses on only 10 companies, which is not a very diverse portfolio,» says Joseph M. Favorito CFP® professional and managing partner at Landmark Wealth Management. «It doesn’t take into account the tax impact of possibly turning over your entire portfolio should you attempt this in a non-retirement account without a tax shelter,» Favorito says.

The Dogs of the Dow strategy has been around for decades but gained renewed interest among investors in 1991. That’s when author Michael B. O’Higgins wrote Beating the Dow. This book explained how if an investor chose the Dow’s 10 highest-yielding stocks they would have outperformed the broader Dow index for the majority of years leading up to the publication of the book. Amgen, yielding 2.9%, was just added to the Dow Jones Industrial Average in 2020. It’s unfortunate then it fell into the dog category right out of the gate. Insurers largely canceled a price increase on its critically important Enbrel franchise.

If that’s merely a https://forex-world.net/-term issue, then the stock often rises over the course of the year, outperforming the broader average and then making way for a new hard-hit stock to take its place. On January 8, 2014, asset manager John S. Tobey wrote an article in Forbes magazine where he criticized the Dogs method. Tobey proposed the equal-weighting method for the Dogs made it difficult or impossible to accurately compare to the DJIA, which uses a different method of price-weighting the stocks. He said that, for the year 2013, using the price weighting the Dogs would have returned less, rather than more, than the DJIA. However, he did not offer advice on how to integrate these factors into the Dogs method.

Again, that largely reflects investors’ distaste for value investing in favor of stocks with higher potential for fast growth. Of course, all these construction plans consume capital, hence the decline in Intel’s free cash flow seen in its second-quarter report. Numerically, it’s possible that capital expenditures will squeeze the dividend. Management would be loathed to cut it, but in the uncertain semiconductor landscape, anything is possible.

It was published for the first time in May 1896 and opened at a level of 40.94 points. Today, the Dow Jones Industrial Average consists of the 30 most important market-leading companies on the American stock exchange and reflects their growth. IBM returns as a Dog of 2023 despite rising 5.4% in 2022, due to its rich 4.7% dividend yield. And Amgen, following a nearly 17% rise in 2022, is a Dog for 2023 with a yield of 3.3%. While it may not outperform the broader market every year, it is virtually guaranteed to provide investors with a combination of attractive current yield with steadily rising income over time. As a result, this investing strategy is a great, low-risk way for unsophisticated investors to approach dividend growth investing.

To obtain this list in just a few clicks, consider using a stock screener. The Dogs of the Dow for 2022 are calculated by taking the share price and dividend yield from December 31, 2021. For the quarter, revenue fell 5.9% to $8.1 billion, which was $10 million better than expected. The adjusted earnings-per-share of $2.28 compared to $2.31 in the prior year was $0.11 below estimates. Of course, you and I know that high yields don’t mean a stock is a value—sometimes they just mean a stock is cheap.

As a result, the oil major grew its adjusted earnings-per-share by 60%, from $2.56 to $4.09, though this was $0.20 below estimates. On January 31st, 2023, Amgen announced fourth-quarter and full-year results. Revenue declined 0.6% to $6.8 billion for the quarter, though this topped estimates by $30 million.

Related investing topics

Adherents of the Dogs strategy assume that the highest yielding Dow stocks are unfairly and temporarily depressed. That presumably means they’ll hold up better than the S&P 500. Adding the Dogs stocks’ 4% average dividend yield coming into 2022 plus their average 1.8% drop still left investors with a positive return of more than 2% on the stocks. Additionally, half of last year’s Dogs, including International Business Machines , Chevron , Merck , Amgen , and Coca-Cola posted gains in 2022. Which Dow stocks would make the cut as one of the Dogs of the Dow today?

• There are no fixed times for reviewing the composition of the index, since changes are only made by the commission as and when they are needed.
• Chevron benefited from increased crude oil prices, as inflation and geopolitical conflict increased costs to the company.
• And, while this is a very simple — even elegant — strategy on the surface, its reductive nature of concentrating to only 10 stocks can make it riskier than one might think.

Meanwhile, biotech pioneer Current dogs of the dow dogs of the dow is brand new to the Dow, adding another healthcare angle to the Dogs. Its prospects for 2021 are also encouraging, with blockbusters like osteoporosis fighter Prolia and immunosuppressant drug Enbrel carrying the weight as Amgen works on prospective treatments in high-value areas. It’s only fitting that pharmaceutical giant Merck stepped into the No. 8 spot on the Dogs list for 2021.

On December 12th, 2022, Amgen announced a 9.8% quarterly dividend increase to $2.13. Management noted that it would target $12 billion in share repurchases this year, helping to drive our initial estimate of $12.00 in earnings-per-share for 2023. Total loans ended the period at $1.14 trillion, up from $1.11 trillion at the end of September. Total deposits were $2.34 trillion, down from $2.41 trillion in the prior quarter.

Merck had a brief rally earlier in the fourth quarter, breaking above $90 per share in early November, but was trading below $80 on Monday. Because dividend yields are higher than the interest rate paid out by most bond funds, investing in a Dogs of the Dow mutual fund or ETF can be a more profitable alternative to bond funds. The risk of these funds is that these funds lack the diversity of other funds. Although it’s hard to say for sure why the Dogs of the Dow strategy works, a common thought is that the companies that make up the Dogs will not alter their dividend strategy based on their stock price.

Read on to learn how to use the AAII Dogs of the Dow screen and see lists of companies meeting the criteria. The Dogs of the Dow is a strategy that focuses the 10 Dow Jones Industrial Average stocks with the highest dividend yields. If you’re looking for the Dogs Of The Dow for 2023, there’s a strong crop to pick from.