Meet the 2021 Dogs of the Dow The Motley Fool

Dividend yield is a measure of how much a company pays in dividends compared to its stock price, expressed as a percentage. “The [Dogs of the Dow] is based on the theory that stocks can be over or undervalued, but over the long run those that are undervalued will ‘revert to the mean,'” says Johnson. The Dogs of the Dow strategy works best when the market focuses on value investing principles.

The members of the Dow are well-established, blue chip companies. But they are not immune to the normal business cycles of expansion and contraction. Where a company https://1investing.in/ is in its business cycle can have a big impact on its stock price, which often peaks when it is at the top and troughs when it is near the bottom of the cycle.

Dogs of the Dow: Definition, List of Stocks, Performance

That’s all it takes, and there’s nothing more to do until the end of the year. At that point, you can either close out the strategy or continue into the next year. If you choose to keep investing in the Dogs of the Dow, you’ll need to replace any stocks that are no longer among the 10 highest-yielding Dow dividend stocks and purchase shares of any new stocks on the list.

Accessing all of the investment information here at Dogs of the Dow is quick, easy and free. You can easily get at everything right here from this homepage, the site links located at the bottom of each page and the search box located near the top right corner of each page (above the footer on mobile). Enjoy and don’t forget to sign up for our free Dogs of the Dow Newsletter.

Amgen, yielding 2.9%, was just added to the Dow Jones Industrial Average in 2020. It’s unfortunate then it fell into the dog category right out of the gate. Insurers largely canceled a price increase on its critically important Enbrel franchise. Whether the company emerges from its diminished status in 2021 might be a toss of the coin then, but throwing in the known unknowns of the pandemic, substantive growth in Amgen shares may take more than a year. Cisco has a yield north of 3%, a figure that probably lands incongruously for investors who remember CSCO as the ultimate go-go stock at the beginning of the century.

Verizon (VZ, 6.8%)

In the last five years, from 2018 to 2023, however, the Dogs have trailed the DJIA with a wider gap, turning in trailing total returns of 5.29% compared to the DJIA’s trailing total return of 8.39%. To put this in context, earnings for 2020 were $0.52, down from $4.32 the prior year. Walgreens seems to be a hole that will take more than a year to dig out of. A side note, the Dogs of the Dow strategy lost about 8%, in what was, improbably, a stellar year for stocks in 2020. Since 2001 though, it’s done better, delivering a total return (price appreciation plus dividends) of 8.97% as measured by the Dow Jones High Yield Select 10 Total Return Index, or MUTR.

Verizon was the poorest performer in the Dow, as investors foresaw slowing growth despite the ongoing rollout of 5G technology. Losses for Merck and Amgen showed the have vs. have-not dynamic going on in healthcare, and tepid performances from most of the other 2021 Dogs of the Dow led the strategy to underperformance of roughly eight percentage points. Another reason why the DJIA is used for the Dogs of the Dow strategy is that every stock in the index pays a dividend. Many of the Dow components are considered dividend aristocrats. By definition, dividend aristocrats are required to meet certain market cap and liquidity requirements.

Verizon sports an eye-popping $136 billion in debt, but is a strong enough credit to be able to refinance this out into the future ad infinitum. For this reason, and its strong cash flows, Value Line rates the stock A++ for financial strength, a designation that no other telecom has, including AT&T (T). There’s a lot of uncertainty about how 2023 will go for stock investors.

For more information on exactly what it takes for a stock to become one of the Dogs of the Dow or Small Dogs of the Dow, be sure to check out Dog Steps. Verizon, with its heritage as a utility, has always paid a fat dividend, which these days is about 4.4%. For this reason, Verizon has been a dog, in the technical meaning of the word, for at least a decade.

What is the criteria for Small Dogs of the Dow?

After that they simply hold those stocks for the entire year and repeat the process at the beginning of the following year. Although it’s hard to say for sure why the Dogs of the Dow strategy works, a common thought is that the companies that make up the Dogs will not alter their dividend strategy based on their stock price. This means that even when these companies are going through difficulties, they will maintain – and in many cases – increase their dividend. And, while this is a very simple — even elegant — strategy on the surface, its reductive nature of concentrating to only 10 stocks can make it riskier than one might think. Filtering to blue-chip stocks in the Dow helps lower this risk to some extent but certainly doesn’t eliminate it. Depending on how the market performs, some stocks may remain a dog for a few years.

The Dogs of the Dow strategy produced a price change of -1.8%, beating the Dow’s performance by about 7 percentage points. Moreover, when you add the roughly 4% yield that the Dogs of the Dow paid, they saw their return move into positive territory at around 2%. It was the first year since 2018 that the Dogs outperformed the Dow Jones Industrials. An extended bear market hit major benchmarks, with high-growth stocks taking the brunt of the damage. The Nasdaq Composite finished 2022 down 33%, and even the broader S&P 500 index lost 19% on the year. The Dogs of the Dow strategy is a buy-and-hold strategy that is appropriate for investors who are looking to minimize their risk.

• For all steps required to invest in the 2023 Dogs of the Dow, get the free Dogs of the Dow Checklist.
• But ultimately, every dog has its day, and the ones that were at the bottom of the heap many times show up at the top.
• Verizon was the poorest performer in the Dow, as investors foresaw slowing growth despite the ongoing rollout of 5G technology.
• 2020 was a horrible year for the Dogs, which ended the year down almost 13% compared to a 7% rise for the overall Dow.
• “The [Dogs of the Dow] is based on the theory that stocks can be over or undervalued, but over the long run those that are undervalued will ‘revert to the mean,'” says Johnson.

For most nonprofessionals, though, investing is never that simple, especially with the myriad of strategies out there. So, it behooves the average individual investor to understand what they are doing with their money. Businesses outside of GARDASIL such as oncology and animal health, a much larger portion of revenues, are notching solid gains. With two promising covid vaccines in the pipeline, there are enough wildcards in the mix to get Merck out of the doghouse in 2021.

The Dogs of the Dow beat the market in 2022. Here’s how the list shapes up for next year

Due to the nature of the concept and limited number of stocks involved, the Dogs of the Dow will likely not cover all market sectors. For example, the ten stocks that belonged to the 2019 Dogs of the Dow list came from only seven sectors, including technology, energy, and healthcare,[6] in contrast to the S&P 500 Index which covers eleven sectors. This strategy is similar to investing in an index fund, but is actually much simpler since it is truly a “set it and forget it” strategy.

To see all exchange delays and terms of use please see Barchart’s disclaimer. The Dogs of the Dow experienced greater losses during the financial crisis of 2008 than the DJIA, but in the decade and more that followed it only slightly underperformed the bellwether index. The main reason to follow the Dogs is that it presents a straightforward formula designed to perform roughly in line with the Dow. So how have the Dogs of the Dow performed over the long-term? When comparing the Dogs of the Dow to the S&P 500 since 2010, the performance is also very similar with the Dogs returning an average of 13.6% per year compared to 13.9% per year for the S&P 500.

Here are the newest stocks to join the portfolio for those using this easy-to-follow strategy.

The Dogs strategy showed cracks in 2019, really fell off the rails in 2020 and came up short again in 2021. This is rooted in an “old-school” value approach that views big dividends as a sign that high-quality blue chips are undervalued. And with just three simple steps, executed just once per year, we can create our own Dow Dogs ETF (minus the annual fees).

While it has strong advocates who tout past successes, its future results may or may not generate the returns investors expect. At the end of the year, re-determine the top ten dividend-yielding stocks on the Dow. The Dogs of the Dow for 2022 are calculated by taking the share price and dividend yield from December 31, 2021. Chevron was the highest dividend yielding Dow stock in 2021 with a dividend yield of over 6%.

• Because dividend yields are higher than the interest rate paid out by most bond funds, investing in a Dogs of the Dow mutual fund or ETF can be a more profitable alternative to bond funds.
• The Dogs of the Dow method uses dividend yield to identify which companies are in the contraction phase of the cycle to invest in now, with the hope of later selling for a profit during the expansion phase of the business cycle.
• It’s only fitting that pharmaceutical giant Merck stepped into the No. 8 spot on the Dogs list for 2021.

Few strategies are easier than the Dogs of the Dow in terms of implementation. On the last trading day of the year, you take the dividend yields of all 30 Dow stocks. From there, put the stocks in order and take the 10 highest-yielding ones.

With a lot of overseas business, the historically strong dollar currently delivers a big hit to IBM’s revenues, and growth is better than the reported numbers. In its latest earnings report, IBM said it expects revenue growth “above its mid-single digit model,” with currency translation presenting a seven percentage point hit. Net-net, it’s possible that IBM will spend another year in the doghouse. However, waiting it out with a 5% yield, and the financial strength to maintain it, may prove to be alluring for many investors. For investors, that leaves software and consulting as the businesses to watch, which were up 7.5% and 5.4%, respectively, in the last quarter. The core markets these businesses address – cloud computing, consulting and hybrid AI – are growers.

The latest example was in 2021 when the company spent nearly $46 billion – more than any other major telecom company – on broadband licenses in anticipation of a 5G world that has yet to materialize. Remember, it was just three years ago that Dow was spun out of DuPont (DD), and is still finding its sea legs. Of course, all these construction plans consume capital, hence the decline in Intel’s free cash flow seen in its second-quarter report. Numerically, it’s possible that capital expenditures will squeeze the dividend. Management would be loathed to cut it, but in the uncertain semiconductor landscape, anything is possible. CVS Health (CVS) went through such a transformative shift, most notably with its November 2018 acquisition of health insurer Aetna for an eye-popping $78 billion.

Employing the Dogs of the Dow Strategy

Rebalance by selling your positions and re-allocating the capital into the new top ten dividend-yielding stocks determined in Step 2. However, the Dogs have a value investing orientation, and value investors in general got crushed in 2020. Relative performance between growth and value tends to run in cycles, though, and that gives investors hope that 2021 will be kinder to the kennel of Dog stocks. Meanwhile, biotech pioneer Amgen is brand new to the Dow, adding another healthcare angle to the Dogs. A 5% drop in its stock price reflected the same lack of attention as most companies in the industry that didn’t have a COVID-19 vaccine or treatment candidate in the headlines, but Amgen’s long-term performance has been strong.

The idea is that the Dow stocks with the highest yields are often the ones that have underperformed recently, or even lost value. For those looking for a simple investing strategy to generate dividend income, the Dogs of the Dow are worth a closer look. They won’t always beat the market, but they’ll give you the portfolio income you want and the top-name stocks that offer comfort and reassurance to even the most conservative of investors.

Though welcome, it feels like Lucy might be yanking the football from Charlie Brown. Shares of IBM, at about $147, are still below where they started 2018. An investor who wants to practice the Dogs of the Dow strategy will find the 10 highest dividend-yielding stocks at the beginning of the calendar year. Many stock screening tools will provide investors with an updated list of the Dogs of the Dow.

But the devil is in the details, and in healthcare, there’s a lot of them. To this end, there has been a flurry of dealmaking at Walgreens. Among the largest is last year’s $5.2-billion investment in Village MD, which provides “primary care services” through a variety of outlets. Then in November of this year, Village what is a business segment MD announced its intention to buy urgent care provider Summit Health for $9 billion. But aside from its initiative to strengthen its digital transformation to become more competitive in its pharmacy business, Walgreens is trying to make a comeback by restructuring itself into “a consumer-centric healthcare company.”