Saturday, November 29, 2014

Eyeing Potential Changes In The 2015 Dogs Of The Dow

One strategy pursued by some investors is the Dogs of the Dow Theory. In short, the theory suggests investors select the ten stocks that have the highest dividend yield from the stocks in the Dow Jones Industrial Index (DJIA) after the close of business on the last trading day of the year. Once the ten stocks are determined, an investor would invest an equal dollar amount in each of the ten stocks and hold them for the entire year. This strategy has generated mixed results over the years. As the month of November has come to an end, evaluating potential changes in the ten stocks to include in the strategy for 2015 yields several potential changes ahead.

With the recent collapse of oil prices it is not a surprise to see the energy stocks in the Dow Jones Industrial Average rise to the top of potential 2015 Dow Dog candidates. Chevron (CVX) is already a 2014 Dow Dog and it appears ExxonMobil (XOM) may join Chevron in 2015. Additionally, as the so-called "old technology" companies gained investor interest this year, the Dow Dog technology stocks appear to be on the way out in 2015. If Cisco (CSCO), Microsoft (MSFT) and Intel (INTC) are not Dow Dog members in 2015, the Dow Dog strategy will contain no technology stocks in the coming year.

From The Blog of HORAN Capital Advisors

The potential inclusion of ExxonMobil is not a surprise given the weak performance of many of the energy related stocks. As the below chart notes, the energy sector has been the worst performing S&P 500 sector this year through the end of November. The November energy sector decline of 8.49% has taken the year to date sector return into negative territory with a YTD return of -8.24%. One of the top performing sectors this year has been technology so it is not a surprise that CSCO, MSFT and INTC participated in the strong technology performance.

From The Blog of HORAN Capital Advisors
Data Source: S&P Dow Jones Indices

Lastly, in reviewing the 2014 Dow Dogs' return, they have managed to outperform the Dow Jones Industrial Average Index through November as noted in the below table. The Dow index is a price weighted one and many of the $100+ stocks in the DJIA Index are not Dow Dogs this year. A number of the $100+ Dow stocks have been significant underperformers relative to the overall index return,
  • ExxonMobil (share price $101.20) YTD return -10.5%
  • Boeing (share price $136.49) YTD return -1.6%
  • United Technologies (share price $113.80) YTD return -3.3%
From The Blog of HORAN Capital Advisors

The Dow Dogs and to a greater extent the Dow index have underperformed the broader S&P 500 Index through November. On a price only basis, the S&P is up 11.9%, the Dow Jones Industrial Average is up 7.6% and the Dogs are up 10.2%. Much can happen in December that could result in a different set of changes. Investors may be looking for the often stated Santa Claus rally, which tends to make the month of December a positive one for investors as recently highlighted by S&P Dow Jones Indices.

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