As investors may realize, the Dow Jones Industrial Average has significantly underperformed the broader S&P 500 Index on a year to date basis. The S&P 500 Index is up 7.00% on a price only basis while the Dow Jones Index is higher by only 2.98%. Because the Dow index is a price weighted index, companies in the index with higher stock prices have a larger impact on the Dow index performance. Consequently, higher priced stocks in the Dow have trailed the broader market. For example:
- Boeing (NYSE:BA), with a price of $128.77, is down 5.7%,
- United Technologies (NYSE:UTX), with a price of $105.08 is down 7.7% and,
- International Business Machines (NYSE:IBM), with a price of $187.57 is up only 1.1%.
Interestingly, the Dogs of the Dow for 2014 have outperformed both the Dow index as well as the S&P 500 Index on a year to date basis. As the below table shows, the price only return for the Dogs of the Dow have returned 7.4% through Monday's close versus 7.0% for the S&P 500 Index and 3.0% for the Dow Jones Industrial Average.
|From The Blog of HORAN Capital Advisors|
Source: Dogs of the Dow
The Dow Dog strategy consists of selecting 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 prior 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. Investors should note the strategy has generated mixed results over the years though.
Disclosure: Family long UTX.