HORAN Capital Advisors

Dow Dogs 2019 Return Unable To Keep Pace With Broader Market

 January 1 2020     David Templeton
First of all I want to wish everyone a Healthy and Prosperous New Year as a new decade unfolds. The  just completed decade certainly ended with a bang with the S&P 500 Index (SP500) up 31.49% and the Dow Jones Industrial Average Index (DJIA) up 25.34%. One strategy that significantly underperformed both the DJIA and the SP500 was the Dogs of the Dow investment strategy. Readers may recall from earlier posts 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 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.

For all of 2019 the Dogs of the Dow returned 19.7% versus 25% and 31% return for the DJIA Index and SP500 Index, respectively. As the below table shows, the best performing Dow Dog in 2019 was JP Morgan Chase (JPM) returning 47.3% and the laggard was Pfizer (PFE) with a return of negative 6.9%. Also worth highlighting is the fact over 4.0 percentage points of the Dow Dogs total return came form dividends.


The next table below details the attribution analysis of the 2019 Dow Dogs versus the Dow Jones Industrial Average Index. Although the Dow Dogs' technology weighting of 21.49% is above the 19.08% weighting in the DJIA Index, this sector was the largest detractor from the performance of the Dow Dogs. Cisco's (CSCO) impact was -5.70 percentage points and IBM was -1.80 percentage points. With Apple (APPL) not being a Dow Dog, this cost the Dow Dogs basket -3.11 percentage points. Not unlike the S&P 500 Index in 2019, the technology sector for the Dow Jones Industrial Index returned 51.12%, far outpacing the next closest sector return, financials at 34.37%.


In conclusion, for investors pursing the Dow Dogs strategy, there are three new holdings for the 2020 Dow Dogs. The new 2020 Dogs are:

  • Dow (DOW) with a dividend yield of 5.12%
  • 3M (MMM) with a dividend yield of 3.26% and,
  • Walgreens Boots Alliance (WBA) with a dividend yield of 3.10%.
The three stocks being replaced are JP Morgan (JPM), Procter & Gamble (PG) and Merck (MRK.)


Disclosure: Firm and/or family long: AAPL, DOW, JPM, MRK, VZ, XOM