Dogs Of The Dow: Best And Worst Breeds

Kevin L. Matthews II is a No. 1 bestselling author and former financial advisor. He has helped hundreds of individuals plan for their retirement in addition to managing more than $140 million in assets during his advisory career. In 2017, he was named one of the Top 100 Most Influential Financial Advisors by Investopedia.

Coca Cola ended 2016 with a dividend yield of 3.57%, and it’s now 3.48%. Cisco Systems closed at $34.07 on April 28, up 12.7% year-to-date, and up 17% from its postelection low of $29.12 set on Dec. 2. The stock ended 2016 with a dividend yield of 3.84%, and it’s now 3.49%.

The big question for the Dogs is whether initiatives that investors have anticipated all year will come to pass before the end of 2017. If those programs get put in place, then the corresponding rise could help push the Dogs forward overall. Because of the way that the Dogs of the Dow get picked every year, you can count on seeing some turnover among the 10 stocks that make the cut.

The Motley Fool owns shares of and recommends Verizon Communications. To keep things simple, let’s concentrate on ROE, and combine that with FCF yield to see if we can invent a superior breed to the traditional Dogs of the Dow. Specifically, how much cash an asset will generate over its lifetime. A better proxy for value is the overall free cash flow a business generates, i.e. the free cash flow yield. Even still, no single metric fully encompasses the value of a security.

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. Has set new record highs on several occasions this year, and it’s on pace to have its best year since 2013. An abrupt about-face in interest rate movements and generally positive economic performance have helped power stocks higher, defying the fears that many investors had at the end of 2018.

How does the ‘Dogs of the Dow’ strategy work?

The following table lists the ten highest yielding Dow stocks as of the close on December 31, 2016. Of these ten Dow stocks, the five stocks with the lowest closing price are the 2017 Small Dogs of the Dow. For more information on how the Dogs of the Dow are selected, try Dog Steps. For 2018, the biggest thing to watch is whether the energy segment bounces back. With both of the Dow’s integrated oil giants, as well as General Electric among the Dogs, a recovery in oil and natural gas could spur outperformance. By contrast, if underrepresented trends in the Dogs, such as industrials and financials, continue to do well, then the Dogs could suffer another defeat to the Dow in 2018.

While it has had some measure of success, investors should be cautious around their level of risk and diversification. Insider’s experts choose the best products and services to help make smart decisions with your money (here’s how). In some cases, we receive a commission from our partners, however, our opinions are our own.

• For those who aren’t familiar with the Dogs of the Dow strategy, it’s a simple way to try to improve on the performance of the overall Dow.
• Investors looking to reduce holdings should sell strength to $35.94 and $38.35, which are annual and semiannual risky levels, respectively.
• Interestingly, neither of the two consumer giants had particularly good years, with both stocks underperforming the broader Dow in 2016.

Walgreens seems to be a hole that will take more than a year to dig out of. A side note, the Dogs of the Dow strategy lost about 8%, in what was, improbably, a stellar year for stocks in 2020. Since 2001 though, it’s done better, delivering a total return of 8.97% as measured by the Dow Jones High Yield Select 10 Total Return Index, cryptocurrency brokerage firm or MUTR. Since 2001, the MUTR returned 8.97% versus 9.06% for the SPXT. A more focused strategy narrows down the selections to just five of the dogs. The most obvious reason for the underperformance of the Dogs of the Dow is that the strategy left out what have turned out to be the strongest players in the technology industry.

The stocks that this popular strategy chose will produce gains, but they probably won’t be big enough to beat the Dow overall.

Because of its emphasis on high-yield dividend stocks, the Dogs of the Dow strategy has a reputation for being somewhat defensive. As we’ll see, that doesn’t always work out well when the market is sharply higher, as it’s often growth stocks that lead the way upward. To understand the relative underperformance of the Dogs of the Dow in 2019, you should know how the Dogs got picked at the beginning of the year. The strategy’s simplicity is one of its biggest selling points, as all you have to do is to rank the 30 component stocks of the Dow Jones Industrials by dividend yield at the beginning of the year.

On average since 2010, the Dogs of the Dow have had near-identical returns to the broader gauge. Cisco has a yield north of 3%, a figure that probably lands incongruously for investors who remember CSCO as the ultimate go-go stock at the beginning of the century. The company is pivoting to higher-margin software and solutions.

Cisco’s weekly chart is positive but overbought with the stock above its five-week modified moving average of $32.44, and above its 200-week simple moving average of $26.59. The projected 12x3x3 weekly slow stochastic reading is 84.50, moving above the overbought threshold of 80.00. The weekly chart for Exxon Mobil is negative but oversold with the stock below its five-week modified moving average of $83.89 and below its 200-week simple moving average of $88.99. The projected 12x3x3 weekly slow stochastic reading is 14.15, moving below the oversold threshold of 20.00.

‘Dogs of the Dow’ unleashed for 2017

A fine idea, but right now they represent about 11% of total 2020 sales, indicating for investors, CSCO is a long game, and most certainly longer than a year. Businesses outside of GARDASIL such as oncology and animal health, a much larger portion of revenues, are notching solid gains. With two promising covid vaccines in the pipeline, there are enough wildcards in the mix to get Merck out of the doghouse in 2021.

But they are not immune to the normal business cycles of expansion and contraction. Where a company is in its business cycle can have a big impact on its stock price, which often peaks when it is at the top and troughs when it is near the bottom of the cycle. If you like big yields, Chevron, now yielding 5.5%, might be the stock for you. Dividend cuts by Royal Dutch Shell and BP sent a shiver through the oil patch though. If CVX cuts the dividend, the stock will be in the door house for a bit longer. However, unlike many companies suffering covid woes, the impact on Chevron is binary.

Improving prospects in military and defense should also bolster Boeing in the near future. But there’s only one other stock with double-digit gains among the 10 Dogs of the Dow. That compares to 11 of the 20 non-Dog Dow stocks with gains of 10% or more so far in 2017. Find out how to use this easy-to-follow stock-picking strategy. We recommend that you sign up to receive our free Dogs of the Dow Newsletter. Doing so will keep you up to date with all that goes on here at Dogs of the Dow and alert you to high dividend paying stock opportunities as well as any official Dogs of the Dow revisions.

Have had an incredibly strong 2017, with gains of 22% pushing the average above the 24,000 mark recently. That’s been good news for many investors, but it has left some who’ve sought out market-beating strategies shaking their heads and wishing they’d just bought an index-tracking investment instead. One victim of 2017’s success has been the Dogs of the Dow strategy, which emphasizes the most dividend-friendly stocks among the 30 components of the Dow. Chasing yield in 2016 led many dividend-paying stocks to rarefied levels this summer. Before financials decided to take off to the top of the leader board, Telecom and Utilities—both chock full of dividend names—led the sector pack with returns of 19% and 17% midway through the summer. The following table presents the 2017 Dogs of the Dow performance plus the performance all Dow 30 components.

Investors looking to buy Verizon should do so on weakness to $46.24, which is my monthly value level. Investors looking to reduce positions should sell strength to $54.03, $56.87 and $56.99, which are quarterly, semiannual and annual risky levels, respectively. The stock ended 2016 with a dividend yield of 3.94% and it’s now 3.78%, the third cheapest stock among the Dow versus fourth place at the end of 2016. The stock ended 2016 with a dividend yield of 3.57% and it’s now 3.51%, the fifth cheapest stock among the Dow, up from sixth place. International Business Machines closed at $181.95 on March 1, up 9.6% year-to-date. The stock ended 2016 with a dividend yield of 3.55% and it’s now 3.30%, in seventh place among the Dow 30.

Coca Cola’s weekly chart is positive with the stock above its five-week modified moving average of $41.49 and above its 200-week simple moving average of $41.51. The projected 12x3x3 weekly slow stochastic reading is 58.42, rising above the oversold threshold of 20.00. The Dow (20,940.51 on April 28) set its all-time intraday high of 21,169.11 on March. My weekly and quarterly value levels are 20,464 and 19,189 with my semiannual pivot at 20,893. My monthly, annual and semiannual risky levels are 21,279, 22,042 and 22,148, respectively.

Dow Futures

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. Revenues, operating income, and case volume all declined, in some cases precipitously, in the three quarterly reports that were issued in 2020. Coke is somewhat binary, in that a return to normality in 2021 will lend a big boost to its business.

Smoking Hot Buy-Rated Stocks Under $10 With Gigantic Upside Potential

Conversely, pharma stocks have suffered from concerns over plans to control drug costs. With the two pure-play Dow pharma stocks both among the Dogs, any news that favors drug companies would disproportionately help the strategy’s relative performance to the overall Dow. Both of the Dow’s energy stocks are among the Dogs this year, and with oil sagging again, both stocks are down almost 10% so far this year. The Dogs of the Dow strategy has been quite successful recently. In six of the past seven years, the strategy has outperformed the returns of the Dow Jones Industrials, and it has generated greater amounts of income in the process. That makes the Dogs especially attractive to dividend investors.

The stock ended 2016 with a dividend yield of 3.84% and it’s now 3.37%, which ranks sixth among the Dow, down from third. My proprietary analytics show that the Dow began March gapping trend envelopes indicator above my semiannual risky level, now a pivot of 20,893. The upside potential until the end of June is annual and semiannual risky levels of 22,041 and 22,148, respectively.

Yields Have Totally Collapsed: 7 ‘Strong Buy’ Stocks With Huge Dividends to…

For those who aren’t familiar with the Dogs of the Dow strategy, it’s a simple way to try to improve on the performance of the overall Dow. To use the strategy, first figure out which 10 Dow stocks had the highest dividend yields at the beginning of 2017. Then, you invest equal amounts of money in each of the 10 stocks. Hold onto the stocks throughout the year, and at the beginning of 2018, you’ll take a new look to see which 10 Dow components have the highest yields at that point.

You can invest directly in the Dow through exchange-traded funds, but many investors prefer a strategy that emphasizes dividend income. Known as the Dogs of the Dow, the strategy involves buying a set of stocks at the beginning of each year and holding them for the entire 12-month period. Below, you’ll see the stocks that qualify as the 2018 Dogs of the Dow, along with some more information about this strategy.

Highest Dividend Paying Dow Stocks Today

The 2017 dog-leaders remain Boeing and Cisco Systems with year-to-date gains of 18.7% and 12.7%, respectively. The dog-laggards Chevron, Verizon and Exxon Mobil are also the biggest 2017 losers among the Dow 30, down 9.3%, 14% and 9.5% year-to-date, respectively. A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.

The Dogs of the Dow strategy requires once-a-year portfolio adjustments. IBM, yielding 5.2%, has done a shrinking act for the last decade with earning andrevenues shrinking trading systems reviews by about a third each. Big Blue may now be well-positioned with a focus on hybrid cloud and AI, but it’s going to take much longer than a year for this battleship to turn.