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Dogs of the Dow

Dogs of the Dow theory, used as an investment strategy, was first popularized by Michael O’Higgins in his book Beating the Dow, which was published back in 1992. The theory is based on the purchase of high dividend yield stocks that are members of the Dow Jones Industrial Average.

This concept is a great follow up to our article on dividend paying stocks, where we explain why certain companies pay higher dividends than others. The term “dogs” refers to the fact these companies have somehow fallen out of favor with the investment community.

Dogs of the Dow Theory

The approach behind this investment method is simple. The Dow Jones Industrials is a prestigious list of 30 blue chip stocks. Sorting these stocks to find the ten companies with the highest dividend yield will produce a list of companies that are undervalued relative to their peers. By refreshing the list each year, there is a chance that new “dogs” will be picked. These are the stocks that stand the greatest opportunity to catch up with their peers, thereby outperforming the DJIA.

O’Higgins examined their performance by looking at the annual returns of these sets of stocks over a 17-year timeframe. He compared the performance of a portfolio of ten stocks with that of the rest of the Industrials Index. He found the average annual return for the Dogs of the Dow was 17.9%, compared to 11.1% for the rest of the Dow.

To summarize, in this theory we have a combination of large cap stocks, paying high dividend yields, which seem to be undervalued relative to their peers.

Choosing the Dogs of the Dow

Each year, a new portfolio of stocks is chosen, using the closing price on the last day of trading for the previous year. Some of the stocks might remain the same; some companies will be replaced by new dogs. Investors purchasing this portfolio are supposed to allocate 10% of their investment dollars to each stock. This means a different number of shares for each company are bought, since their market prices will be different. Fortunately, several mutual funds have responded to the popularity of this investment strategy, and it’s possible to purchase mutual funds that follow the Dogs of the Dow Theory.dogs of the dow

Recent Returns

In recent years, the performance of these dogs has not fared quite as well as the time period examine by O’Higgins (1973 to 1989). For example, they’ve only beaten the S&P 500 Index three times in the last five years. The dogs have also been outpaced by the Dow Jones Industrial Average three times in the last five years. Below is a table illustrating the relative performance of this group for the years 2000 through 2020.

Historical Performance

Year Dogs DJIA S&P 500
2020 -12.6% 7.2% 18.4%
2019 15.5% 22.3% 31.5%
2018 0.0% -3.7% -4.6%
2017 19.4% 25.1% 18.9%
2016 16.1% 13.4% 9.5%
2015 -1.2% -2.2% -0.9%
2014 7.0% 7.5% 11.4%
2013 30.3% 28.1% 31.8%
2012 5.7% 7.3% 13.4%
2011 12.2% 5.5% 0.0%
2010 15.5% 11.0% 12.8%
2009 12.9% 18.8% 23.5%
2008 -41.6% -33.5% -38.5%
2007 -1.4% 6.4% 3.5%
2006 30.3% 19.1% 15.8%
2005 -5.1% 1.7% 4.9%
2004 4.4% 5.3% 10.9%
2003 28.7% 28.3% 28.7%
2002 -8.9% -15.0% -22.1%
2001 -4.9% -5.4% -11.9%
2000 6.4% -4.7% -9.2%

The above table demonstrates that 2020 was a bad year for this group. The Dogs of the Dow were outpaced by both the S&P 500 and the DJIA.

Dogs of the Dow Portfolios

Now that we’ve explained the investment theory, and provided information on relative performance, it’s time to share the Dogs of the Dow for 2021. Remember, this list is based on the closing performance for 2020. The next group of stocks will be published after the last trading day of the year. For reference, we’ve listed below the Dogs of the Dow for the last five years.

Dogs of the Dow 2021

Stock Symbol Company Name 2020 Close Dividend Yield
CVX Chevron 84.45 6.11%
IBM International Business Machines 125.88 5.18%
DOW Dow 55.5 5.05%
WBA Walgreens 39.88 4.69%
VZ Verizon 58.75 4.27%
MMM 3M 174.79 3.36%
CSCO Cisco 44.39 3.24%
MRK Merck 81.8 3.18%
AMGN Amgen 229.92 3.06%
KO Coca-Cola 54.84 2.99%

Dogs of the Dow 2020

Stock Symbol Company Name 2019 Close Dividend Yield
DOW Dow 54.73 5.12%
XOM ExxonMobil 69.78 4.99%
IBM International Business Machines 134.04 4.83%
VZ Verizon 61.4 4.01%
CVX Chevron 120.51 3.95%
PFE Pfizer 39.18 3.88%
MMM 3M 176.42 3.26%
WBA Walgreens 58.96 3.10%
CSCO Cisco 47.96 2.92%
KO Coca-Cola 55.35 2.89%

Dogs of the Dow 2019

Stock Symbol Company Name 2018 Close Dividend Yield
IBM International Business Machines 113.67 5.52%
XOM ExxonMobil 68.19 4.81%
VZ Verizon Communications 56.22 4.29%
CVX Chevron 108.79 4.12%
PFE Pfizer 43.65 3.30%
KO Coca-Cola 47.35 3.29%
JPM JP Morgan Chase 97.62 3.28%
PG Procter & Gamble 91.92 3.12%
CSCO Cisco Systems 43.33 3.05%
MRK Merck 76.41 2.88%

Dogs of the Dow 2018

Stock Symbol Company Name 2017 Close Dividend Yield
VZ Verizon Communications 52.93 4.46%
IBM International Business Machines 153.42 3.91%
PFE Pfizer 36.22 3.75%
XOM ExxonMobil 83.64 3.68%
CVX Chevron 125.19 3.45%
MRK Merck 56.27 3.41%
KO Coca-Cola 45.88 3.23%
CSCO Cisco Systems 38.3 3.03%
PG Procter & Gamble 91.88 3.00%
GE General Electric 17.45 2.75%

Dogs of the Dow 2017

Stock Symbol Company Name 2016 Close Dividend Yield
VZ Verizon Communications 53.38 4.33%
PFE Pfizer 32.48 3.94%
CVX Chevron 117.7 3.65%
CSCO Cisco Systems 30.22 3.44%
BA Boeing 155.68 3.65%
KO Coca-Cola 41.46 3.38%
IBM International Business Machines 165.99 3.37%
XOM ExxonMobil 90.26 3.32%
CAT Caterpillar 92.74 3.32%
MRK Merck 58.87 3.19%

About the Author – Dogs of the Dow