Dogs of the Dow 2024: To Howl or Not to Howl?
Updated Jan 2025
The “Dogs of the Dow” strategy, a contrarian investing hallmark remains a staple for those seeking value in blue-chip stocks. This approach identifies the ten highest-yielding stocks within the Dow Jones Industrial Average, betting on their potential to rebound and deliver outsized returns through a combination of dividends and capital appreciation.
“In times of uncertainty, discipline is the investor’s best friend,” Warren Buffett once remarked. This sentiment aligns well with the Dogs of the Dow strategy, which emphasizes consistency and patience—traits often overlooked in a world of instant gratification. Investors who stick with this method accept short-term underperformance for the promise of long-term gains.
In 2024, the Dogs of the Dow posted a modest return of 6.3%, lagging behind the Dow Jones Industrial Average’s 9.8% gain. Despite this, the strategy’s enduring appeal lies in its historical resilience:
- From 2000 to 2024, the Dogs of the Dow averaged an annual return of 9.7%, outpacing the Dow Jones Industrial Average’s 8.5%.
- Over the past decade, it beat the broader index in 7 out of 10 years, proving its ability to weather diverse market conditions.
However, modern markets are evolving, and critics quickly point out the strategy’s limitations. Dr. Andrew Lo of MIT Sloan observes, “In an era defined by artificial intelligence and algorithmic trading, static strategies like this may miss out on opportunities arising from rapid market shifts.”
While innovation reshapes investing, the Dogs of the Dow remains a compelling option for those who value simplicity and a steady income stream. The question for 2025: will this pack of dividend-rich stocks lead the way or trail behind the broader market? Investors must decide whether to follow this time-honoured strategy or adapt to the dynamic realities of modern finance.
Current Dogs of the Dow: Jan 2025
| Ticker | Company | Price | Dividend Yield | Watchlist |
|---|---|---|---|---|
| VZ | Verizon | 38.34 | 7.07% | Yes |
| CVX | Chevron | 159.38 | 4.09% | No |
| AMGN | Amgen | 269.43 | 3.53% | No |
| JNJ | Johnson & Johnson | 147.77 | 3.36% | Yes |
| MRK | Merck | 100.70 | 3.22% | Yes |
| KO | Coca-Cola | 62.25 | 3.12% | Yes |
| IBM | IBM | 222.66 | 3.00% | No |
| CSCO | Cisco | 59.82 | 2.67% | Yes |
| MCD | McDonald’s | 279.74 | 2.53% | No |
| PG | Procter & Gamble | 160.50 | 2.51% | No |
Legendary investor Peter Lynch advises: “Know what you own, and know why you own it.” This wisdom is particularly relevant when considering the Dog’s strategy, which requires understanding each company’s fundamentals and growth prospects.
As we navigate 2024’s market complexities, investors must weigh the strategy’s historical performance against evolving dynamics. The Dogs of the Dow approach may still offer value for the patient, but contrarian investors are willing to look beyond short-term fluctuations and focus on long-term potential.
The 2024 Dogs of the Dow lineup includes:
1. Verizon (VZ): 6.71% yield
2. Walgreens Boots Alliance (WBA): 6.58% yield
3. 3M (MMM): 5.91% yield
4. Dow Inc. (DOW): 5.33% yield
5. IBM (IBM): 4.63% yield
Legendary investor Peter Lynch advises, “Know what you own, and know why you own it.” This wisdom is particularly relevant when considering the Dogs of the Dow strategy, which requires a deep understanding of each company’s fundamentals and growth prospects.
Plato also remarked, “Necessity is the mother of invention.” Modern investing could interpret this as the need for continuous adaptation and innovation in investment strategies. The successful investor must, therefore, be contrarian not just in stock selection but also in thought, challenging prevailing market doctrines and adapting strategies to align with the changing financial landscape. This approach demands a contrarian mindset and a profound understanding of market fundamentals and the broader economic environment.
Tactical Investor Version
As an investor in the modern era of hot money, it’s essential to take a tactical approach to stock selection. The original theory, which focused on high-paying dividend stocks, may no longer be the most effective investment strategy. That’s why we’ve developed a new and improved version of the theory: the Tactical Investor Dogs of the Dow methodology.
Rather than blindly selecting the highest-paying dividend stocks, we take a more nuanced approach. Our strategy is to invest equal capital in stocks trading at highly oversold levels on the monthly charts. By doing so, we can take advantage of the market’s long-term outlook, identifying stocks that have great potential but are currently disliked by the masses.
This approach is based on the principles of Mass Psychology and Contrarian investing. We understand that the masses are often wrong regarding the markets, and we seek out stocks that have fallen out of favour but have strong fundamentals. By investing in such stocks, we can take advantage of market inefficiencies and generate superior returns.
Unlike the original theory, we don’t hold onto stocks for a year. Instead, we have them until they reach the overbought range, and then we close the position and find a new replacement. This way, we can adapt to changing market conditions and ensure our portfolio is always positioned to generate the best possible returns.
College Investor Concurs That the Original Strategy is Not That Great
Recent data suggests that the Dogs of the Dow strategy may not be as influential as once believed. According to The College Investor, the approach has yielded a 10.8% return over the past 20 years, matching the performance of the total Dow Jones Industrial Average during the same period.
However, a modified approach called the “Small Dogs of the Dow” has shown superior results:
1. Performance: The Small Dogs strategy has returned 12.6% to investors over the past two decades.
2. Methodology: This approach focuses on investing in only 5 of the highest-yielding Dow components with the lowest stock price, rather than the traditional ten highest-yielding stocks.
3. Comparative Returns:
– $1,000 invested in the S&P 500 index would have grown to $6,254 over 20 years.
– The same investment in the Dogs of the Dow or the whole Dow Jones Industrial Average would have reached $7,776.
– The Small Dogs of the Dow would have turned $1,000 into $10,734 over the same period.
Dr Robert Shiller, Nobel laureate in economics, notes: “Market inefficiencies can persist for long periods, creating opportunities for strategies like the Dogs of the Dow. However, as markets evolve, so must our approaches to exploiting these inefficiencies.”
The Tactical Investor’s modified theory suggests the potential for improved results when applied diligently, particularly in identifying the Dogs of the Dow for each year. This adapted approach, rooted in careful stock selection, may yield better outcomes than the original strategy.
Dr. Andrew Lo of MIT Sloan School of Management adds: “The effectiveness of any investment strategy can change over time as market dynamics evolve. Continuous adaptation and rigorous analysis are crucial for maintaining an edge in modern markets.”
These findings underscore the importance of critically evaluating and potentially modifying traditional investment strategies to adapt to changing market conditions.
Empirical Evidence Supporting the Dogs of the Dow Strategy
A comprehensive study by Domain, Louton, and Mossman, published in the Financial Review in 1998, analyzed the strategy’s performance from 1964 to 1997. The researchers found that the Dogs of the Dow outperformed the Dow Jones Industrial Average by an average of 3% annually over these 34 years. This significant outperformance suggests that the strategy effectively identified undervalued stocks with the potential for price appreciation.
Interestingly, a 2007 study by Hirschey in the Financial Services Review examined the strategy’s performance in international markets. The research revealed that the Dogs of the Dow approach outperformed local market indices in 9 10 countries studied from 1995 to 2004. This global success indicates that the strategy’s underlying principles may have universal application across different market environments.
However, not all studies have been uniformly positive. A 2014 paper by Chong and Phillips in the International Review of Economics and Finance found that the strategy’s effectiveness diminished from 2001 to 2011. They attributed this decline to changes in dividend policies and increased market efficiency.
Dr Jeremy Siegel, professor of finance at Wharton and author of “Stocks for the Long Run,” offers a nuanced perspective: “While the Dogs of the Dow strategy has shown historical outperformance, its effectiveness can vary over different market cycles. Investors should view it as one tool among many in their investment arsenal.”
More recent data provides mixed results. According to S&P Global, the Dogs of the Dow strategy underperformed the broader Dow Jones Industrial Average in 2020 and 2021 but outperformed in 2022. This variability underscores the importance of considering market conditions and economic cycles when implementing the strategy.
A unique aspect of the Dogs of the Dow approach is its simplicity, which can be both a strength and a weakness. As Nobel laureate Daniel Kahneman notes, “Simple models often outperform more complex ones in uncertain environments.” However, this simplicity may also lead to overlooking essential factors impacting stock performance.
It’s worth noting that the strategy’s focus on high-yield stocks may inadvertently lead to sector concentration. A 2019 Journal of Asset Management study found that the Dogs of the Dow portfolio often overweighted specific sectors, notably telecommunications and utilities. This concentration could increase portfolio risk if these sectors face industry-specific challenges.
Small Dogs Vs Big Dogs
The “Dogs of the Dow” strategy involves buying the ten highest-yielding stocks in the Dow Jones Industrial Average at the beginning of each year, while the “Small Dogs of the Dow” strategy consists of buying the five lowest-priced stocks of the 10 Dogs of the Dow.
While both strategies have proponents, some argue that the Small Dogs of the Dow strategy may be a better approach. For example, a study by Forbes found that the Small Dogs of the Dow outperformed the Dogs of the Dow in nine out of ten years from 2003 to 2013 and the Dow Jones Industrial Average itself in seven out of ten years during that same period.
One reason for the outperformance of the Small Dogs
Is that the strategy focuses on the stocks that have the most room for growth rather than just the highest-yielding stocks. Additionally, the Small Dogs of the Dow strategy may provide a higher level of diversification since it only includes five stocks instead of ten.
Another study by the New York Times found similar results, showing that the Small Dogs of the Dow outperformed the Dogs of the Dow by an average of 3% per year between 1988 and 2009.
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