In the mid-1990s a strategy called "Dogs of the Dow" became popular.  Its popularity briefly waned in the late 1990s as growth investing was all the rage. Once the internet bubble burst, however, the strategy’s performance improved and long-term investors benefited.  With growth stocks like Apple and Nvidia giving profit warnings, this year looks to be a good one for the Dogs of the Dow stocks.

The Dogs strategy is based on the concept that investors should own well-established companies with attractive yields. The strategy is simple:  At the start of the year rank the Dow stocks based on their yield. The ten with the highest yields are purchased and held until year-end at which time the process is repeated. The Dogs of the Dow strategy limits holdings to Dow stocks because they are all well-established and unlikely to cut their dividends. 

Dividends are the key component because yield matters. Over the last ten years, the S&P 500 index is up 212 percent. With dividends, however, the index is up 295 percent!

In 2018 the Dogs of the Dow stocks, adjusted for dividends, were unchanged but outperformed the S&P 500, which dropped 4.6 percent. Results would have been better if General Electric (GE) wasn’t part of the portfolio (which I warned about in last year’s Dogs of the Dow article). Since 2000, the average yearly return of the Dogs of the Dow strategy has been 6.6 percent versus 5.1 percent for the S&P 500.

In ascending order of dividend yield, the 2019 Dogs of the Dow are as follows: Merck (MRK), Cisco Systems (CSCO), Procter & Gamble (PG), JPMorgan Chase (JPM), Coca-Cola (KO), Pfizer (PFE), Chevron (CVX), Verizon (VZ), Exxon Mobil (XOM), and International Business Machines (IBM). Of the 2019 Dogs, my favorites are Verizon, Merck, and Pfizer. These are long-term positions in many of my client accounts. 

Of the 2019 Dogs of the Dow stocks, three are “Dividend Aristocrats.”  A Dividend Aristocrat is a stock that has paid and increased their dividend for 25 consecutive years.  They are Procter & Gamble (PG), Coca-Cola (KO), and Exxon Mobile (XOM).

There isn’t a Dogs of the Dow ETF but the ALPS Sector Dividend Dogs ETF (SDOG) applies a similar strategy. It buys the five highest-yielding stocks in each of the Standard & Poor’s sectors. Whether you buy this ETF or the individual issues, owning dividend-paying stocks pays off over the long term