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Want to Beat the Market? Try Dogs of the Dow 2019

Reading time: 9 minutes

Did you know there is an investing strategy that beat the overall Dow Jones stock market index 80% of the time in the last 10 years? It also happens to be one of the simplest investing strategies around - first popularised in 1991 by Michael B.O'Higgins in his book Beating the Dow. If you are trying to beat the market this year then maybe it is something you want to know about? If so, read on!

Market movement

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 index each year. Before we look at the mechanics of the strategy, why 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 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 late in the 19th century by Charles Dow and is a price-weighted average of 30 publicly traded companies in the United States.

These 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 and currently include:

  • American Express Co
  • Apple Inc
  • Boeing Co
  • Caterpillar Inc
  • Cisco Systems Inc
  • Chevron Corp
  • DowDuPont Inc
  • Exxon Mobil Corp
  • Goldman Sachs Group Inc
  • Home Depot 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
  • Pfizer Inc
  • Procter & Gamble Co
  • Travelers Companies Inc
  • UnitedHealth Group Inc
  • United Technologies Corp
  • Verizon Communications Inc
  • Visa Inc
  • Walgreens Boots Alliance Inc
  • Walmart Inc
  • Walt Disney Co

* As of January 2019

It's from these Dow Jones 30 stocks that the Dogs of the Dow strategy draws its selection from. The selection criteria is based on the dividend yield of each of these companies and is explained below.

Dividend Yield

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. For example, on the first day of trading in 2019, Exxon Mobil's closing price was $69.69. The company pays $3.28 in dividends to anyone who holds their stock. That translates into a 4.7% dividend yield ($3.28 / $69.69 x 100). Now that we know more about the Dow 30 and dividend yield, 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 be this year's leaders. The Dogs of the Dow strategy attempts this by investing into the top 10 highest dividend yield stocks from the Dow 30 at the beginning of each year.

The Dogs of the Dow Step by Step Process

  1. At the beginning of the year, identify the top 10 highest dividend yield stocks from the Dow 30 list
  2. The divide the total amount of money you want to invest into 10 equal parts
  3. Using each part, buy shares in each of the ten Dow stocks listed in the first step
  4. Hold these stocks until the end of the year
  5. 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?

Dogs of the Dow historical performance

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 - beating the performance of the Dow Jones Industrial Average index in eight of the past ten years:

  • The Dogs of Dow 2018 suffered a 1.5% loss whereas the overall Dow suffered a 6% loss

2018 Dogs of the Dow performance

Source: CNBC

  • In 2017, The Dogs of the Dow underperformed the Dow index with 19% against 25%
  • 2016 saw the Dogs perform well with gains of 20% against the Dow's 17%
  • In 2015, the Dogs gained nearly 3% while the Dow broke even
  • In 2014, the Dogs gained 11% while the Dow gained 10%
  • 2013 saw the Dogs outperform the Dow with 35% against 30%
  • In 2012, the Dogs and the Dow both came in around 10%
  • In 2011, the Dogs outperformed the Dow by 11%
  • 2010 saw the Dogs gain 16% and the Dow 9%

No investment strategy will ever provide a perfect performance over such a long period of time. However, the tendency for the Dogs to outperform the Dow - on average - makes this a solid strategy to build upon.

Why Does Dogs of the Dow 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 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 which 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 their 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.

How to Take Part 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, 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.

The Admiral.Invest account may be more suited for this particular investment strategy as it allows you to buy physical shares, collect dividend payments with zero account maintenance fees, and offers trading commissions starting at just $0.01 per share with minimum transaction fees of just $1 on US stocks.

What Are the 2019 Dogs of the Dow?

If you are interested in the new Dogs of the Dow 2019, here they are:


Ticker

Name

Dividend Yield

1

IBM

International Business Machine

5.50%

2

XOM

Exxon Mobil Corporation

4.80%

3

VZ

Verizon Communications

4.30%

4

CVX

Chevron Corporation

4.10%

5

PFE

Pfizer

3.30%

6

KO

Coca-Cola Company

3.30%

7

JPM

JP Morgan Chase & Co.

3.30%

8

PG

Procter & Gamble Company

3.10%

9

CSCO

Cisco Systems

3.00%

10

MRK

Merck & Co.

2.90%

With the global economy off to a shaky start this year, will you be banking on the Dogs of the Dow 2019 to beat the market this year?

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  1. The analysis is published for informative purposes only and are in no way to be construed as investment advice or recommendation.
  2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
  3. Each of the Analysis is prepared by an independent analyst (Jitan Solanki, Freelance Contributor) based on personal estimations.
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