The Dogs of the Dow is an investing strategy that is relatively well-known to many retail and institutional investors. The list is published annually by the Dogs of the Dow website. The ten stocks from the Dow 30 that have the highest yield on the last day of the year comprise the Dogs of the Dow for the following year. Before diving into the list of the Dogs of the Dow in 2022, let’s examine the history of the Dow 30 and the Dogs of the Dow.
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History of the Dow 30
The Dow Jones Industrial Average is also referred to as the Dow 30, and both names are used synonymously. The Dow Jones 30 refers to an index of 30 blue-chip stocks created by Wall Street Journal editor Charles Dow in 1896. It is the second oldest index after the Dow Jones Transportation Average. The name is derived from Charles Dow and his business partner Edward Jones.
The index was created to track the market performance of leading industrial stocks in an era when information flow was limited. Initially, there were 12 industrial companies in the index. These were the most significant industrial companies and included companies in the sugar, tobacco, oil, and rubber industries. The 12 companies in the original Dow Jones Industrial Averages were American Cotton Oil, American Tobacco, American Sugar, Chicago Gas, Distilling & Cattle Feeding, General Electric, Laclede Gas, National Lead, North American, Tennessee Coal & Iron, US Leather, and US Rubber.
In 1916 the number of stocks in the index was increased to 20. In 1928 the index was again expanded to 30 stocks, and it has been at that number since then. Although the index was initially comprised of industrial stocks, the index later added non-industrial or service stocks. Today, technology, financial services, and healthcare sectors have a significant representation in the Dow 30.
The index is price-weighted, which is unlike most other indices that are weighted by market capitalization. This fact means that stocks with higher share prices are given greater weight in the index. It is calculated as the sum of the prices of all 30 companies divided by a factor.
The factor, referred to as the Dow Divisor, is adjusted for stock splits, dividends, spin-offs, and additions or deletions to the Dow 30. The Wall Street Journal calculates the Dow Divisor. The Dow Divisor formula attempts to maintain continuity, but it has been as high as 16.67 in 1928 and as low as 0.147 in 2019. The current value (as of January 10, 2022) of the Dow Divisor is roughly 0.15172752595384, as reported by Barron’s Market Lab.
Today, the Dow Jones Industrial Average companies are chosen by committee. The index is maintained by the S&P Dow Jones Indices, which is majority-owned by S&P Global (SPGI). The index does not include transportations and utilities, which have their own indices. The stock selection criteria are not entirely transparent. Reportedly, to be considered for the Dow 30, a company must meet the following requirements:
- Must be incorporated and headquartered in the US.
- Generate the majority of its revenue from the US.
- Help make the Dow representative of the overall US economy
- Attract a large number of investors
- Demonstrate sustained growth
- Have an excellent reputation
That said, stocks can be removed from the Dow 30 and later reinstated. For example, Chevron (CVX) was in the Dow 30 from 1930 to 1999 when it was removed. The stock was returned to the index in 2008. Similarly, Honeywell (HON) was removed from the index in 2008 and added back in 2020. The Dow 30 last changed in 2020. You can look at the list of addition and deletions in the Dow 30 since 1929.
Stocks in the Dow 30
The current stocks in the Dow 30 are listed in the table below. This list is up to date as of January 12, 2020. Note that Salesforce (CRM) does not pay a dividend. In addition, both Disney (DIS) and Boeing (BA) have suspended their dividends. You can check the coronavirus dividend cuts and suspensions list for other stocks cutting, stopping, or omitting dividends.
|Company||Ticker||Market Cap||P/E Ratio||Dividend Yield|
|3M COMPANY||MMM||$ 102,933||17.58||3.31%|
|AMERICAN EXPRESS COMPANY||AXP||$ 138,660||18.34||0.99%|
|AMGEN INC.||AMGN||$ 130,278||23.93||3.36%|
|APPLE INC.||AAPL||$ 2,865,620||31.22||0.50%|
|CATERPILLAR INC.||CAT||$ 119,975||23.89||2.00%|
|CHEVRON CORPORATION||CVX||$ 244,980||24.82||4.22%|
|CISCO SYSTEMS, INC.||CSCO||$ 261,576||23.18||2.39%|
|Dow Inc.||DOW||$ 43,756||7.68||4.73%|
|HONEYWELL INTERNATIONAL INC.||HON||$ 150,417||27.83||1.80%|
|INTEL CORPORATION||INTC||$ 224,880||10.85||2.51%|
|INTERNATIONAL BUSINESS MACHINES CORPORATION||IBM||$ 119,203||25.72||4.94%|
|JOHNSON & JOHNSON||JNJ||$ 445,883||25.60||2.50%|
|JPMORGAN CHASE & CO.||JPM||$ 496,672||10.60||2.38%|
|MCDONALD’S CORPORATION||MCD||$ 194,848||27.06||2.12%|
|MERCK & CO., INC.||MRK||$ 204,703||32.26||3.41%|
|MICROSOFT CORPORATION||MSFT||$ 2,389,490||35.21||0.78%|
|NIKE, INC.||NKE||$ 239,938||39.38||0.80%|
|SALESFORCE.COM, INC.||CRM||$ 233,231||127.80||0.00%|
|THE BOEING COMPANY||BA||$ 127,566||0.00||0.00%|
|THE COCA-COLA COMPANY||KO||$ 260,973||29.74||2.78%|
|THE GOLDMAN SACHS GROUP, INC.||GS||$ 131,289||6.65||2.04%|
|THE HOME DEPOT, INC.||HD||$ 404,737||25.86||1.70%|
|THE PROCTER & GAMBLE COMPANY||PG||$ 383,683||28.99||2.19%|
|The Travelers Companies, Inc.||TRAVEL||$ 40,113||11.45||2.16%|
|THE WALT DISNEY COMPANY||DIS||$ 286,972||142.72||0.00%|
|UNITEDHEALTH GROUP INCORPORATED||UNH||$ 445,317||29.09||1.23%|
|VERIZON COMMUNICATIONS INC.||VZ||$ 221,230||10.08||4.79%|
|VISA INC.||V||$ 455,094||45.45||0.69%|
|WALGREENS BOOTS ALLIANCE, INC.||WBA||$ 46,483||7.90||3.55%|
|WALMART INC.||WMT||$ 397,830||50.48||1.53%|
Other Dividend Stocks Lists
I have also written articles with several other lists and analyses on U.S. dividend growth stocks including:
For Canadian stocks, I have written about
For UK stocks, I have written about
Other dividend stock lists
History of the Dogs of the Dow
The concept of investing in the highest-yielding Dow 30 or Dow Jones Industrial Average stocks was reportedly popularized by Michael B. O’Higgins in his book “Beating the Dow,” published in 1991. These stocks are considered “dogs” or not desirable for investors. However, the investing strategy argues that these stocks can have significant gains in stock price plus relatively high dividend yields. This point is because the stock is thought to be temporarily oversold.
A website, Dogs of the Dow, is primarily dedicated to the investing strategy. The website initially published the Dogs of the Dow list in 1996 and included Philip Morris (MO), Texaco (TX), JP Morgan (JPM), Chevron (CVX), Exxon (XON), Dupont (DD), 3M (MMM), International Paper (IP), General Electric (GE), and Eastman Kodak (EK). In addition, you can look at the Dogs of the Dow website for other years between then and the current list of Dogs of the Dow in 2022.
How does the Dogs of the Dow Investing Strategy Work?
According to the Dogs of the Dow website,
“Dogs of the Dow is a stock picking strategy devoted to selecting the highest dividend paying Dow stocks.”
The general idea for the Dogs of the Dow strategy is to make stock picking simple and relatively safe. The Dogs of the Dow focuses on blue-chip stocks paying a dividend. The strategy is also meant to be a long-term strategy requiring less effort than constant trading. Many Dogs of the Dow pay a dividend, and a few are dividend growth stocks, but it is not strictly a dividend growth investing strategy.
The investing strategy requires you to have equally-weighted positions in the ten Dogs of the Dow. For example, at the end of the calendar year, an investor should select the ten highest-yielding Dow 30 stocks. Then, they rebalance their portfolio at the beginning of the new year to bring it back to a 10% allocation for each stock. You may also need to sell stocks that are no longer in the Dogs of the Dow due to changes in the Dow 30 or price appreciation and corresponding changes in dividend yield. Note that equal weighting means that the strategy does not follow the same principle of price weighting as the underlying index.
The Dogs of the Dow strategy assumes blue-chip companies do not change their dividend to reflect the normal business cycle. On the other hand, stock prices reflect the 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 cycle.
Limitations of Dogs of the Dow
The Dogs of the Dow strategy sounds simple, but it takes some effort, like most things related to portfolio management. It is not an indexing strategy. Like most do-it-yourself or DIY strategies, there is an active element. That said, the actual trading and rebalancing are limited to a small part of the calendar year. The strategy maximizes yield in a relatively small universe of 30 blue-chip stocks. Hence, your portfolio may not be diversified across sectors. Furthermore, the strategy can lead to a concentrated portfolio in a limited number of sectors, especially if one sector is out of favor, e.g., oil majors during the COVID-19 pandemic.
Dogs of the Dow in 2022
The list of Dogs of the Dow in 2022 is given in the table below. The list is based on data at the end of December 31, 2021, when the Dogs of the Dow for 2022 were identified. The average yield at the start of 2022 was 3.76%, which is more than double the average of the S&P 500 Index.
One interesting point is if you follow this strategy, about 20% of your portfolio would be in pharma and biotech and another 30% in tech and communications. So this portfolio is a concentrated one.
Note the Dogs of the Dow in 2022 is static for the year, meaning it does not change until 2022.
|THE COCA-COLA COMPANY||KO||2.78%|
|INTERNATIONAL BUSINESS MACHINES CORPORATION||IBM||4.91%|
|MERCK & CO., INC.||MRK||3.40%|
|VERIZON COMMUNICATIONS INC.||VZ||4.79%|
|WALGREENS BOOTS ALLIANCE, INC.||WBA||3.55%|
Nine of the ten stocks on this list were on the Dogs of the Dow 2020. The one change was Cisco (CSCO) dropped off the list and Intel (INTC) was added to it. In 2020, Cisco was one of the best performing Dogs of the Dow in 2020 and thus the divided yield dropped to around 2.4% and below Intel’s.
Dividend Power has recently written analysis on many of these stocks.
Does the Dogs of the Dow Strategy Work?
Investors want to know the central question: Does the Dogs of the Dow strategy work? The answer seemingly is yes. This point is valid despite the limitations and general criticism of the Dow 30 and Dogs of the Dow.
O’Higgins back-tested the strategy to the 1920s and found that the Dogs of the Dow outperformed the broader market as a whole. For instance, between 1992 and 2001, the Dogs of the Dow returned 10.8% average annual returns matching the Dow 30 and beating the S&P 500, which returned 9.6%.
The Dogs of the Dow website states since 2000, the strategy has had an average total return of ~9.3% when dividends are reinvested through the end of 2021. 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 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, and the bear market during the early stages of the COVID-19 pandemic.
Another analysis of returns from 2008 to 2018 indicates the strategy generally works. For example, in 2008, the Dogs of the Dow would have underperformed the DJIA. But it would have outperformed the DJIA in eight out of ten years during the period.
Another article indicates the Dogs of the Dow beat the DJIA by more than 1% per year on average in the past decade (through 2019). The Dogs of the Dow only trailed the broader index in three out of 10 years.
However, the Dogs of the Dow strategy underperform for 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.
Final Thoughts on Dogs of the Dow 2022
Why does the Dogs of the Dow strategy seemingly work? First, the dividend yields are relatively high, leading to an initial advantage compared to stocks with lower dividend yields. Second, a stock often has a high dividend yield since the price has fallen. This point is either due to sector or company-specific difficulties. Usually, a stock on the Dogs of the Dow list is undervalued compared to the broader market. It follows a strategy of investing in temporarily undervalued stocks. Ultimately, the Dogs of the Dow is a contrarian strategy.
Prior Year Dogs of the Dow
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