By: Ian Cooper
It’s time to think about year-end strategies, including the Dogs of the Dow.
With the Dogs of the Dow, you’re simply buying the highest yielding 10 Dow Jones stocks that fell out of favor, investing an equal amount in each, liquidating by January 1 of the following year, and repeating for nearly predictable rewards.
Even better, it's easy to use, and it performs well.
The way you pick the Dogs is very simple.
When the year starts, look at the top 10 yielding dividend stocks in the Industrials. Invest equal amounts of money in all 10 stocks. Then, hold onto those stocks throughout the year. At the end of the year, we do it all over again.
While some, including Barron’s once reported that the “Dogs of Dow Investing Strategy no Longer Works,” that’ not true. Others have noted that research confirmed back in 2007 that the Dogs of the Dow is no longer a successful concept.
And still others argue investors are barking up the wrong tree with the theory.
While 2007 was flat, followed by a 38.8% decline in the Dogs for apparent subprime reasons, the Dogs have returned a gain every year since.
In fact, in 2009, they were up 16.9%. In 2010, they jumped 20.5%.
In 2011, there were up 16.3%. In 2012, they jumped 9.9%. In 2013, they returned 34.9%. In 2014, they returned 10.8%
In 2015, they did okay, returning just 2.6%.
In 2016, the Dogs returned 16% on average. So, the idea that the theory is dead is laughable.
In 2017, the Dogs of the Dow returned 19% for the year. For 2018, the Dogs included:
• Verizon VZ ran from $50 to $57
• IBM IBM fell from $149 to $120
• Pfizer Inc. PFE ran from $35 to $44
• ExxonMobil XOM has been flat for the year so far
• Chevron CVX fell from $124 to $118
• Merck MRK ran from $55 to $73
• Coca-Cola KO ran from $43 to $48
• Cisco Systems CSCO ran from $37 to $46
• Procter & Gamble PG ran from $87 to $91
• General Electric GE fell from $17 to $9
While it’s been a bump year for most with incessant volatility, it’s still a worthwhile strategy.
There are three ways to trade Dogs yearly.
One is to buy an ETF such as the ELEMENTS Dogs of the Dow (DOD) ETF. A second way is to diversify among all 10 Dogs while collecting dividends from each. And a third way is to buy long-dated call options on each with a plan to hold for the full year.