Will A Dogs Of The Dow Portfolio Shine This Year?
This time of year, investment strategists publish 2023 model portfolios for their clients. The portfolios are ostensibly designed to allow investors to earn market-beating returns while minimizing risks. Of course, these recommendations can frequently prove far off the mark. For example, in late 2021, many market seers anticipated another good year in 2022 and recommended investors adopt portfolios with at least moderate risk. To state the obvious, that was not a winning strategy last year.
Many strategists expect difficult market conditions to persist into 2023 and recommend portfolios with less than average risk. Whether this roadmap is how things play out in 2023 is anyone’s guess (although the Fed may have a lot to say about the ultimate outcome).
Given all the uncertainty regarding potential portfolio composition for 2023, investors may want to consider one of the oldest strategies, the Dogs of the Dow. According to this theory, an investor should purchase (and equally weight) the ten highest yielding stocks in the Dow Jones Industrial Average at the end of one year and hold those throughout the next year. The general theory is that such stocks probably underperformed during the past year (which is reflected in their high dividend yield) and could be poised for a rebound in the next one.
Perhaps the most interesting aspect of the “Dogs” investment strategy is its history of success in the year after a down stock market year. The S&P 500 has had six down years since 2000. In the year after each of those years, a “Dogs” portfolio has outperformed the S&P 500 three times, matched it once, and underperformed twice.
HISTORICAL PERFORMANCE OF DOGS OF THE DOW AND S&P 500 INDEX
| YEAR | DOGS | S&P 500 INDEX |
| 2020 | -12.6% | 18.4% |
| 2019 | 15.5% | 31.5% |
| 2018 | 0.0% | -4.6% |
| 2017 | 19.4% | 18.9% |
| 2016 | 16.1% | 9.5% |
| 2015 | -1.2% | -0.9% |
| 2014 | 7.0% | 11.4% |
| 2013 | 30.3% | 31.8% |
| 2012 | 5.7% | 13.4% |
| 2011 | 12.2% | 0.0% |
| 2010 | 15.5% | 12.8% |
| 2009 | 12.9% | 23.5% |
| 2008 | -41.6% | -38.5% |
| 2007 | -1.4% | 3.5% |
| 2006 | 30.3% | 15.8% |
| 2005 | -5.1% | 4.9% |
| 2004 | 4.4% | 10.9% |
| 2003 | 28.7% | 28.7% |
| 2002 | -8.9% | -22.1% |
| 2001 | -4.9% | -11.9% |
| 2000 | 6.4% | -9.2% |
While 2022 did not follow a negative market year in 2021, the Dogs of the Dow have trounced the S&P 500 in 2022. Through December 31, 2022, the strategy is down 1.8% versus a negative 8.6% total return for the broad index.
Below are the ten Dogs of the Dow stocks for 2023. The yield on this “Dogs” portfolio, about 4.5%, would be 60 basis points higher than the 3.9% yield on the 2022 assemblage of stocks.
DOGS OF THE DOW PORTFOLIO COMPOSITION FOR 2023
| (Stock prices are in U.S. dollars) | Exchange/Symbol | Stock Price | Dividend Yield |
| Verizon Communications Inc. | NYSE: VZ | $39.40 | 6.62% |
| Dow Inc. | NYSE: DOW | $50.39 | 5.56% |
| Intel Corporation | NASDAQ: INTC | $26.43 | 5.52% |
| Walgreens Boots Alliance, Inc. | NASDAQ: WBA | $37.36 | 5.14% |
| 3M Company | NYSE: MMM | $119.92 | 4.97% |
| International Business Machines Corporation | NYSE: IBM | $140.89 | 4.68% |
| Amgen, Inc. | NASDAQ: AMGN | $262.64 | 3.24% |
| Cisco Systems, Inc. | NASDAQ: CSCO | $47.64 | 3.19% |
| Chevron Corporation | NYSE: CVX | $179.49 | 3.16% |
| JPMorgan Chase & Co. | NYSE: JPM | $134.10 | 2.98% |
| Average Dividend Yield of the Ten Stocks | 4.51% |
Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
