Monday, August 17, 2020

So Far Not A Year For The Dogs Of The Dow

This year has not been a good one for the Dogs of the Dow strategy. A number of reasons can be cited, like energy sector weakness and both Chevron (CVX) and Exxon Mobil (XOM) included in the strategy this year or Cisco System (CSCO) and IBM a part of the Dow Dog portfolio and not Apple (AAPL). In a year where the FAANG + Microsoft (MSFT) portfolio is so dominant from a return perspective, it is clear from hindsight why the Dow Dogs are lagging.

To repeat 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 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 them for the entire next year. The popularity of the strategy is its singular focus on dividend yield.

As the below table shows, all of the 2020 Dow Dogs have a negative price return year to date. The only stock with a positive total return is Pfizer (PFE), up .1%. On a price only basis the Dow Dog portfolio is down 15.3% versus the Dow Jones Index being down 1.9% and the S&P 500 Index up 4.7% through August 14, 2020. I wrote a few years ago about the importance of understanding the strategy's bets in a given year and this year's Dow Dog performance supports that.

A lot can change before the year comes to an end, investors experienced that in February and March, but the Dogs of the Dow have a lot of ground to make up in the final three and a half months if they expect to outperform the Dow Index itself.

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