Dow Dogs 2019 Return Unable To Keep Pace With Broader Market

Summary

  • The just-completed decade certainly ended with a bang, with the S&P 500 Index up 31.49% and the Dow Jones Industrial Average Index up 25.34%.
  • One strategy that significantly underperformed both the DJIA and the SP500 was the Dogs of the Dow investment strategy.
  • For all of 2019, the Dogs of the Dow returned 19.7% versus 25% and 31% return for the DJIA Index and SP500 Index, respectively.

First of all, I want to wish everyone a healthy and prosperous new year as a new decade unfolds. The just-completed decade certainly ended with a bang, with the S&P 500 Index (SPY) up 31.49% and the Dow Jones Industrial Average Index (DIA) up 25.34%. One strategy that significantly underperformed both the DJIA and the SP500 was the Dogs of the Dow investment strategy. Readers may recall 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 Average Index 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 that portfolio for the entire next year. The popularity of the strategy is its singular focus on dividend yield.

For all of 2019, the Dogs of the Dow returned 19.7% versus 25% and 31% return for the DJIA Index and SP500 Index, respectively. As the below table shows, the best-performing Dow Dog in 2019 was JPMorgan Chase (JPM), returning 47.3%, and the laggard was Pfizer (PFE), with a return of negative 6.9%. Also worth highlighting is the fact over 4.0 percentage points of the Dow Dogs' total return came from dividends.

The next table below details the attribution analysis of the 2019 Dow Dogs versus the Dow Jones Industrial Average Index. Although the Dow Dogs' technology weighting of 21.49% is above the 19.08% weighting in the DJIA Index, this sector was the largest detractor from the performance of the Dow Dogs. Cisco's (CSCO) impact was -5.70 percentage points, and IBM was -1.80 percentage points. With Apple (AAPL) not being a Dow Dog, this cost the Dow Dogs basket -3.11 percentage points. Not unlike the S&P 500 Index in 2019, the technology sector for the Dow Jones Industrial Index returned 51.12%, far outpacing the next closest sector return, financials at 34.37%.

In conclusion, for investors pursing the Dow Dogs strategy, there are three new holdings for the 2020 Dow Dogs. The new 2020 Dogs are:

  • Dow Inc. (DOW) with a dividend yield of 5.12%
  • 3M (MMM) with a dividend yield of 3.26% and,
  • Walgreens Boots Alliance (WBA) with a dividend yield of 3.10%.

The three stocks being replaced are JPMorgan, Procter & Gamble (PG) and Merck (MRK).

Disclosure: Firm and/or family long: AAPL, DOW, JPM, MRK, VZ, XOM.

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

HORAN Capital Advisors is an SEC registered investment advisor that manages investment portfolios for individuals and institutions. Our firm utilizes a disciplined investing approach that should create wealth for our clients over time. Our investment bias is to invest in companies that generate a steady return over time, i.e., singles and doubles. This singles and doubles approach tends to lead to investments in higher quality dividend growth/cash flow growth companies. On the other hand, there are times when a company's stock price seems to be trading below its fair valuation. Short term gains are possible in these situations. I have been managing investment portfolios for individuals and institutions for over fifteen years and believe investing is like running a marathon and not a sprint. Taking the road less traveled, more often than not, leads to higher returns. Visit: The Blog of HORAN Capital Advisors at (https://horanassoc.com/insights/market-commentary-blog)
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