Why the Dogs of the Dow Were a Big Disappointment in 2023 The Motley Fool

Dow (DOW, $50.07) is in the doghouse, and perhaps well it should be given declines and lumpiness in earnings. However, the company might be forgiven in as much as the chemicals business is cyclical. And if you are waiting for the chemical business to come back, getting paid just over 6% is a tenable position for many investors. Net-net, it’s possible that IBM will spend another year in the doghouse.

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In addition, it’s invested in the technology to deploy production units, known as «crackers,» so that it can quickly adjust to upstream changes with suppliers and downstream requirements from customers. Net-net, Dow is well-positioned to manage rising costs and feedstock bottlenecks, which may materialize in abundance in the coming year. First, the company puts a bit of effort into touting «feedstock flexibility,» which are the inputs to make chemicals, as a competitive advantage, and it’s more than management speak. Dow has strategically located its facilities close to low-cost sources.

• At this point, investors identify the 10 stocks within the Dow Jones Industrial Average (DJIA) with the highest dividend yields.
• Profit and prosper with the best of Kiplinger’s advice on investing, taxes, retirement, personal finance and much more.
• This year’s crop of Dogs seems to face thornier problems than in years past.
• Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on…

In 2022 the average yield was 3.77%, while in 2023, it increased to 4.67%. Tracking the Dogs of the Dow strategy over time offers investors valuable insights into its consistency, adaptability, risk management and income-generation potential. Consistent performance reflects a focus on high dividends, while changes in the portfolio year to year show adaptability to market shifts. Comparing its performance to the broader market helps assess its sensitivity to economic cycles and provides a stable track record that appeals to risk-averse investors. The Dogs of the Dow strategy assumes blue-chip companies do not change their dividend to reflect the normal business cycle. Hence, high yields and low stock prices should mean that a company is at the bottom of the business cycle, while low yields and high stock prices should mean a company is near the top of the business Dogs of the dow 2023 cycle.

Dogs of the Dow 2023

The Dogs of the Dow website states since 2000, the strategy has had an average total return of ~8.7% when dividends are reinvested. This return is compared to the average annual returns of ~7.9% for the Dow 30 during the same period. In addition, the S&P 500 Index has returned ~7.6% in the same stretch. Notably, this period includes the dot-com bust, the Great Recession caused by the sub-prime mortgage crisis, the bear market during the early stages of the COVID-19 pandemic, and the 2022 bear market. The primary benefit that investors get from using the Dogs of the Dow strategy is that it takes almost no time to set up and maintain. At the beginning of the year, you just have to take a look at the 10 Dow stocks that finished the previous year with the highest dividend yields.

Similarly, Coca-Cola (KO 0.23%) stock rose 8% on strong investor appetite for consumer staples stocks. A popular variant of the strategy is the «Small Dogs of the Dow,» which focuses on the five lowest-priced stocks among the ten highest dividend-yielding Dow stocks. From 1992 to 2011, this variation outperformed both the Dow and S&P 500 with an average annual total return of 12.6%.

O’Higgins back-tested the strategy to the 1920s and found that the Dogs of the Dow outperformed the broader market. For instance, between 1992 and 2001, the Dogs of the Dow returned 10.8% average annual total returns matching the Dow 30 and beating the S&P 500 Index, which returned 9.6%. All this suggests that buying VZ now requires faith that it can maintain its dividend. A look at the cash flows for the first six months of the year shows about $5.4 billion in dividends paid, which was covered more than three times over by almost $18 billion in cash flow from operations.

• These stocks are considered “dogs” or not desirable for investors.
• Please consult with a licensed investment professional before you invest your money.
• The average yield at the start of 2023 was 4.51%, which is more than three times the average of the S&P 500 Index.
• For most nonprofessionals, though, investing is never that simple, especially with the myriad of strategies out there.
• Sales dipped -2% but its organic sales edged up 1% over last year’s quarter, thanks to higher prices.
• The advent of real-time data and live lists has further enhanced the Dogs of the Dow strategy’s appeal.

DOW DOGS BEAT THE MARKET

If reliability and simplicity are what you seek in stock market investing, it’s hard to beat the Dogs of the Dow. The investment strategy calls for buying equal dollar amounts of each of the 10 stocks in the Dow Jones Industrial Average with the highest dividend yields as a new year begins. After holding these stocks for 12 months, you rebalance the portfolio into the 10 stocks with the highest dividend yields one year hence and repeat the process annually. The idea is to catch high-quality companies while they’re temporarily down on their luck and bargain-priced, and to get paid by the dividends while you wait for the eventual recovery.

For investors, that leaves software and consulting as the businesses to watch, which were up 7.5% and 5.4%, respectively, in the last quarter. The core markets these businesses address – cloud computing, consulting and hybrid AI – are growers. Global IT spending is anticipated to rise to $4.6 trillion in 2025, up 5% over 2022, according to research firm Gartner. IBM is poised to increase revenues from this spend, and in this respect, there is an achievable and sustainable path to growth. However, this growth is likely to be slower and steady rather than rapid and meteoric. After all, Alphabet’s (GOOGL) Google and Microsoft (MSFT) are swimming in the same pond.

Dogs of the Dow

The most recent earnings report from Dow might give investors confidence that it is on the upswing, with the company beating the consensus earnings estimate. However, keep in mind, the total net income was off 55% from a year ago. The nine-month performance was a little more upbeat, with net income off just 14%.

The list of the 2025 Dogs of the Dow is below, along with the current dividend yield of the top-ten yielding DJIA stocks. Now that you understand the concept behind the Dogs of the Dow strategy and how the stocks are chosen, let’s dig deeper into how this investment strategy works. Understanding the mechanics of the strategy can provide valuable insights for potential investors. The Dogs of the Dow strategy is designed to be accessible and relatively straightforward for investors, particularly those who prefer a hands-on approach but don’t want to delve into the intricacies of stock analysis. This is a simple yet captivating approach to investing in the stock market. Let’s take a few minutes to unravel the secrets of the Dogs of the Dow strategy and reveal how it might be your ticket to enhanced portfolio performance.

First and foremost, you would focus on the dividend yields of the selected stocks, ranging from 7.49% for Verizon’s dividend yield to 2.72% for JP Morgan Chase’s dividend yield. High dividend yields are a primary criterion for inclusion in the Dogs of the Dow, so assessing whether each stock meets this requirement is essential. Search for each company and find the «dividend yield» at the top of each profile page on the right-hand side. This means they are “the official dogs of the Dow.” However, changes in the market mean that the live list of top Dogs changes frequently. If you are using the official Dogs of the Dow stock list, these frequent changes do not affect you because the strategy dictates you hold these stocks until the end of the calendar year.

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Verizon is dirt cheap, trading at a price-to-earnings (P/E) ratio of only 7.7x, well below the 5-year and 10-year ranges. As a result, Verizon is an excellent choice for investors seeking income at a reasonable price. The start of the year is a good time to add to your existing portfolio or start new positions. An excellent source to look for ideas is among the Dogs of the Dow. These stocks are the highest-yielding ones in the Dow Jones Industrial Average (DJIA) at the end of the preceding year. By contrast, the stocks exiting the Dogs of the Dow in 2024 did great in 2023.

On their face, the Dogs of the Dow are a seeming oasis for investors who want stability and yield. However, the Dogs of the Dow strategy underperform for some periods. For example, the annualized return was about 9.2% compared to approximately 16.0% for the S&P 500 Index in the past decade through 2021. Eight of the ten stocks on this list were on the Dogs of the Dow 2022. The two changes were Merck (MRK) and Coca-Cola (KO) dropped off the list, and Cisco (CSCO) and JPMorgan Chase (JPM) were added to it.

Best Dividend Stocks

Whether this strategy will work or not, though, will take time to determine. Enter your email address and we’ll send you MarketBeat’s list of seven stocks and why their long-term outlooks are very promising. Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… After the bear market in 2022, 2023 brought a pleasant surprise for many investors. Big gains in the Nasdaq Composite and S&P 500 led to closes for the year near record levels. 2023 was another tough year for this popular investing strategy, but fans are hoping for better results in the coming year.