Dogs of the Dow List 2023 - Does it Work & How to Invest?
In this article, we explore the popular investment strategy called Dogs of the Dow, its historical performance and how to get started with it today. While no investment strategy can predict the future, the Dogs of the Dow can serve as a good basis to build upon with more research and analysis.
Table of Contents
What is Dogs of the Dow?
What is Dogs of the Dow? Dogs of the Dow is an investing strategy that uses the highest dividend yield stocks in the Dow Jones 30 index each year. Before we look at the mechanics of the strategy, how it works and its historical performance, let's first understand the Dow Jones index in more detail, as well as the term 'dividend yield'. If you are already familiar with these then go ahead and jump straight to the next section on how the strategy works.
The Dow Jones 30 Index
The Dow Jones index is referred to by several different names including the Dow Jones Industrial Average index, the Dow 30 and - most of the time - just 'the Dow'. The index was created in the late 19th century by Charles Dow and is a price-weighted average of 30 publicly traded companies in the United States.
▶️ The 30 companies are large blue-chip companies from all different sectors, including financial, technology, consumer goods, health, energy, industrials and materials - but not from transportation or utilities.
▶️ The 30 stocks that make it into the Dow 30 are overseen by a selection committee by the S&P Dow Jones Indices company.
At the start of 2023, the stocks in the Dow Jones 30 index included:
- American Express Co
- Amgen Co
- Apple Inc
- Boeing Co
- Caterpillar Inc
- Cisco Systems Inc
- Chevron Corp
- Dow Inc
- Goldman Sachs Group Inc
- Home Depot Inc
- Honeywell International Inc
- International Business Machines Corp
- Intel Corp
- Johnson & Johnson
- Coca-Cola Co
- JPMorgan Chase & Co
- McDonald's Corp
- 3M Co
- Merck & Co Inc
- Microsoft Corp
- Nike Inc
- Procter & Gamble Co
- Travelers Companies Inc
- UnitedHealth Group Inc
- Salesforce.com Inc
- Verizon Communications Inc
- Visa Inc
- Walgreens Boots Alliance Inc
- Walmart Inc
- Walt Disney Co
The dividend yield refers to the annual dividend payment the company pays to its shareholders. Typically, it is expressed as a percentage of the stock's current price. It is a widely used metric to also help identify undervalued shares which you can learn more about in the ‘What is Value Investing?’ article.
▶️ EXAMPLE: Let’s assume Intel’s closing price was $69.69 and that the company pays $3.28 in annual dividends to anyone who holds their stock. That translates into a 4.7% dividend yield ($3.28 / $69.69 x 100).
Companies with a depressed share price tend to boost the dividend yield. This is why it is used as a filter to find undervalued stocks. This becomes even more interesting when using it on the Dow Jones 30 index as the companies in the index tend to represent the strongest companies in the economy whose job is to get their share price higher.
You can learn more about dividend stocks in the ‘Best Dividend Stocks for Income’ article. Now that we know more about the Dow 30 and dividend yields, let's look at how the Dogs of the Dow investing strategy uses them.
How does the Dogs of the Dow strategy work?
The investing strategy works on the premise that last year's laggards may well be this year's leaders. The Dogs of the Dow strategy uses this theory by investing in the top ten highest dividend yield stocks from the Dow 30 index at the beginning of each year.
The Dogs of the Dow Step by Step Process
- At the beginning of the year, identify the top 10 highest dividend yield stocks from the Dow 30 list.
- Then divide the total amount of money you want to invest into 10 equal parts.
- Using each part, buy shares in each of the ten Dow stocks listed in the first step.
- Hold these stocks until the end of the year.
- At the end of the year sell the existing Dogs and then repeat the overall process again.
While it may sound simple, does it actually work?
Does the Dogs of the Dow investment strategy work?
The aim of the Dogs of the Dow strategy is to find undervalued blue-chip companies. It relies on the premise that blue-chip companies are relatively stable and do not alter their dividend payouts based on short-term business conditions.
So, if a company's stock price falls and the dividend payout stays the same, the result is a higher dividend yield - which is why the Dogs of the Dow strategy uses this as a filter to identify laggards who could turn into leaders.
After all, if a blue-chip company's stock price has fallen it could mean they are at the bottom of its business cycle. Once conditions are more favourable, the stock price could start to appreciate again - thereby making it favourable for any Dogs of the Dow investors.
Dogs of the Dow Performance History
From 2007 - 2009 the Dogs of the Dow strategy suffered three consecutive defeats against the Dow 30 index. However, since then the investment strategy has fared much better:
- 2010 saw the Dogs gain 16% and the Dow 9%.
- In 2011, the Dogs outperformed the Dow by 11%.
- In 2012, the Dogs and the Dow both came in around 10%.
- 2013 saw the Dogs outperform the Dow with 35% against 30%.
- In 2014, the Dogs gained 11% while the Dow gained 10%.
- In 2015, the Dogs gained nearly 3% while the Dow broke even.
- 2016 saw the Dogs perform well with gains of 20% against the Dow's 17%.
- In 2017, The Dogs of the Dow underperformed the Dow index with 19% against 25%.
- The Dogs of the Dow 2018 suffered a 1.5% loss whereas the overall Dow suffered a 6% loss.
- The Dogs of the Dow 2019 posted gains of 15.4% underperforming the Dow index which recorded a 22.3% gain.
- The Dogs of the Dow 2020 recorded a loss of -12.6% while the overall index recorded gains of 7.2%.
- The Dogs of the Dow 2021 recorded a gain of 25.3% compared to 21% for the Dow Jones 30 index.
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How to Invest in Dogs of the Dow
There are many ways to participate in the Dogs of the Dow strategy. Some may use the possible appreciation in a Dog's stock price to trade individual stock CFDs (Contracts for Difference), thereby taking a shorter-term outlook. However, the strategy is intended to hold stocks throughout the year while also collecting any dividend payments. It's worth remembering the strategy specifically looks for high dividend-yield stocks - dividends are a source of income for many investors.
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What are Dogs of the Dow for 2023?
If you are interested in the new Dogs of the Dow for 2023, here is the list as of 30 December 2022:
JP Morgan Chase
Source: Nasdaq Dogs of the Dow 2023 list, using dividend yields as of 30 December 2022.
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FAQs on Dogs of the Dow
Why do they call it Dogs of the Dow?
The word 'Dogs' refers to the stocks that have the highest dividend yield due to the fact they have a lower share price and are out of favour with investors.
Who are the current Dogs of the Dow?
The Dogs of the Dow 2023 stocks include Verizon Communications, Intel, Walgreens, Dow Inc, 3M, Chevron, IBM, Amgen, Cisco Systems and JP Morgan Chase & Co.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.