Wednesday, July 04, 2018

Dogs Of The Dow Living Up To Their Name This Year

So far in 2018 the Dogs of the Dow investment strategy is a losing one relative to the return on both the Dow Jones Industrial Average and the S&P 500 Index. Through the close of business on July 3, the average return of the 2018 Dogs of the Dow equals -3.8% on a price only basis and -2.0% total return. This compares to the price return for the Dow Index of -2.3% and total return of -1.4%. For the S&P 500 Index, both the price only return and total return are both positive on the year.

As reader may recall, General Electric (GE) was a newcomer to the Dow Dogs for 2018 and the stock has now been kicked out of the Dow Index all together. Even though GE now is not an Index member, the stock remains a holding in the Dow Dogs for 2018 as the strategy holdings are based on the ten highest dividend yield stocks in the Dow Index at the end of the previous calendar year. Once the ten stocks are determined, an investor invests an equal dollar amount in each of the ten stocks and holds them for the entire next year. The popularity of the strategy is its singular focus on dividend yield.

As the above table shows, only three of the ten stocks have a positive price only return this year. Howard Silverblatt of S&P Dow Jones Indices recently noted the narrowness of stock returns this year. At the end of June, four technology stocks, Amazon (AMZN), Microsoft (MSFT), Apple (AAPL) and Netflix (NFLX) accounted for 82% of the return for the S&P 500 Index in the first six months of the year. Additionally, the technology sector alone accounted for 99.4% of the S&P 500 Index's total return.

This narrowness of return has made many other investment strategies underperformers compared to the larger cap weighted indexes that hold the larger technology stocks noted above. As the second half of the year unfolds, broader stock participation would be a healthy outcome for the equity market.

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