HORAN Capital Advisors

Dogs Of The Dow Lag Broader Market

 April 27 2019     David Templeton
With nearly a third of the year behind investors, following is an update on the performance of the Dogs of the Dow strategy. The Dogs of the Dow strategy is one where investors select the ten stocks that have the highest dividend yield from the stocks in the Dow Jones Industrial Average Index (DJIA) after the close of business on the last trading day of the year. Once the ten stocks are determined, an investor invests an equal dollar amount in each of the ten stocks and holds that portfolio for the entire next year. The popularity of the strategy is its singular focus on dividend yield.

In 2018 the Dow Dogs managed to outperform both the S&P 500 Index and the Dow Jones Industrial Average Index. The dividend yield focus for the Dow Dogs tends to be a factor that holds up in a market environment where stocks are declining, like in the fourth quarter last year. Conversely, the magnitude of the market strength this year and the Dow Dogs income focus are contributing to the underperformance of the Dow Dogs as seen in the below table. The year to date return for the Dow Dogs is 11.8% versus 14.5% for the Dow Jones Industrial Average Index and 17.9% for the S&P 500 Index.


The small number of stock holdings for the strategy results in significant sector overweights and underweights to the broader market indexes like the S&P 500 Index and even versus the Dow Jones Index itself. For example, the current Dow Dogs for 2019 contain no Industrial, Materials or Consumer Discretionary stocks. Below is a look at the sector weights relative to the weights for the Dow Jones Industrial Average Index.



Disclosure: Long JPM, VZ, MRK