The "Dogs of the Doe" strategy, popular among investors, turned out to be less profitable again, than major stock indices. Possible, that in 2022 everything will be different.
What is the strategy?
Dow Jones, which includes 30 blue chips, one of the oldest stock indexes. Based on this index, investors create different investment strategies. And one of them — Dogs of the Dow, or "Dogs of the Doe".
The idea of the strategy is simple: choose from Dow Jones 10 companies with the highest dividend yield and distribute the money equally between them. You need to keep the portfolio for a year, and then rebuild again.
The strategy is based on two hypotheses:
- Companies don't like cutting dividends., which means, the investor is almost guaranteed to make a profit.
- Companies are at the end of their business cycle. They have a high dividend yield, and the share price is relatively low. Supposed, that stocks of such companies will outperform stocks with low dividend yields and high prices.
Dogs Doe in 2021
At the end of the year from 10 "Dogs" the best result was shown by Cisco. The share price went up by 45%, and taking into account dividends - by 48%. Following this growth, Cisco's dividend yield fell c 3,2 to 2,3%. If the situation does not change in the remaining three trading sessions, Intel will take the place of Cisco in 2022 with a dividend yield of 2,7%.
Verizon was the worst. The share price fell by 10%, with dividends - on 6%.
In general, in 2021, the "Dogs of Doe" lagged behind S&P 500, and from Dow Jones. The profitability taking into account dividends turned out to be as follows: S&P 500 — 31%, Dow Jones — 22%, "Dogs of Doe" 17%.
2021 Dog Doe stock return, including dividends
| Cisco (CSCO) | 48% |
| Chevron (CVX) | 47% |
| Walgreens (WBA) | 29% |
| IBM (IBM) | 18% |
| Coca Cola (KO) | 15% |
| Dow (DOW) | 10% |
| 3M (MMM) | 7% |
| Merck (MRK) | 3% |
| Amgen (AMGN) | 3% |
| Verizon (VZ) | −6% |
48%
Dividend Yields of Candidates for Dow Dogs
| IBM (IBM) | 4,9% |
| Dow (DOW) | 4,9% |
| Verizon (VZ) | 4,8% |
| Chevron (CVX) | 4,5% |
| Walgreens (WBA) | 3,6% |
| Merck (MRK) | 3,6% |
| Amgen (AMGN) | 3,4% |
| 3M (MMM) | 3,3% |
| Coca Cola (KO) | 2,8% |
| Intel (INTC) | 2,7% |
4,9%
Long distance
Since 2000, Dogs Doe's average annual returns have been higher, than S&P 500 и Dow Jones. In the last two or three years, the strategy has noticeably lost to indices, pulled by big tech companies. These companies prefer to spend money on buyback instead of dividends, quickly increase profits and are popular with investors. All this drives up the stock., which means, and indices.
But in the coming years, the Dow Dogs may already win. A likely increase in interest rates could negatively affect stocks of expensive technology companies. Possible, that in such a situation, investors will choose companies with large and reliable dividends.
Annual return including dividends
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|---|
| S&P 500 | 1% | 12% | 22% | −4% | 31% | 18% |
| Dow Jones | 0% | 16% | 28% | −3% | 25% | 10% |
| "Doe Dogs" | 3% | 21% | 24% | 0% | 20% | −8% |
