|
With 2015 ending tonight at the stroke of midnight, it was a lackluster year for stocks. The Dow Jones Industrial Average is on track for a decline of 0.8% this year (as of Wednesday’s close). Meanwhile, the small-cap Russell 2000 Index is down nearly 4% year to date.
But at least one time-honored dividend stock strategy paid off again for investors this year: the venerable Dogs of the Dow strategy found the scent in 2015 with a year to date gain of 4%, easily edging out the Dow Jones Industrials’ overall return!
So will the Dogs of the Dow lead the pack again in 2016?
As a refresher: The Dogs of the Dow strategy suggests buying the 10 highest-yielding stocks from among the 30 stocks in the Dow Jones Industrial Average each year.
It’s a simple set-and-forget strategy because it involves just one portfolio rebalancing each year on the first trading day of January, or before today’s close if you want to get out ahead of the pack.
Yet this easy to follow stock strategy has produced market-beating results over the long term.
The theory is that many of the highest yielding stocks in the Dow get that way in part due to a depressed share price, boosting the stock’s dividend yield in the process.
Eventually, mean-reversion kicks in and depressed stocks rise back near the top of the heap, producing market-beating results along the way. Meanwhile, you collect rich dividend income while you wait for stock appreciation.
Dogs will be dogs at times and this strategy doesn’t always beat the market, but in mostly sideways, trading range markets, like this year, the extra dividend yield provided by the Dogs can make this strategy best-in-breed.
These Dogs can hunt well over the long run, too.
The folks at Dow Jones created an index to track the Dogs strategy. And over the past five years, the Dogs have easily outrun the overall stock market with a gain of 97%, while the Dow Jones Industrials have gained just 53%.
In the table below, you’ll see which Dow stocks made it into the dog pound for the year ahead …
 |
Although there are only 10 stocks on the list, it’s a pretty diversified group of household names from a wide variety of industries both cyclical and defensive. The average dividend yield for the 10 top Dogs is a whopping 3.75%, which is well ahead of the 2.5% average yield for the Dow 30 Industrials.
There are several pedigree stocks in the hunt for 2016, but several mutts too.
As you can see, Procter & Gamble (PG), Wal-Mart (WMT) and Coca-Cola (KO) make the cut and have often been repeat performers on the Dogs list. All three blue-chips are part of the consumer staples sector and are considered defensive stocks to own in volatile markets. And all three have yields above 3%, which means they produce more annual income than a 10-year Treasury Bond!
|
Triple-Digit Profits! Oil and energy shares have been trading at their lowest valuations in years. You can buy all the shares you want for 50% to 90% off the recent price. And here’s the secret that savvy insiders know and that can help make you very rich, very quickly: In the past, every time oil prices have fallen this low, this fast … without exception … they have rebounded with a speed and force that leaves investors stunned. Don’t delay, this opportunity won’t last long! Click here for more information! |
| Internal Sponsorship |
Also making the grade from the defensive health-care sector are blue chips Pfizer (PFE) and Merck (MRK), both of these pedigree stocks have rich dividend yields above 3.4%.
And now for the real dogs  …
Not surprising, there are two energy stocks on the list: Chevron (CVX) and Exxon Mobil (XOM). Both “earned” their entry to the 2016 dog pound with horrible returns this year; down 15.8% and 11.9%, respectively. Note: Wal-Mart was actually the worst performing Dow stock this year, down 27.3%.
After oil prices collapsed this year, all energy stocks took a pounding. And there is concern that plenty of energy stocks will fall into financial trouble in the New Year. These two blue chips have staying power, but it’s possible that the rich dividend yields of 4.7% and 3.7%, respectively, could get cut in 2016.
Rounding out the list are Verizon (VZ — 4.7% yield), Caterpillar (CAT — 4.3%) and International Business Machines (IBM — 3.6%). These black-and-blue chips have a long history of paying dividends, but all three also carry lots of debt on their balance sheets, which could endanger the dividends at some point.
Aside from owning the individual stocks on this list, there are also a few ETFs available that track various dividend investment strategies, including one: The ELEMENTS Dogs of the Dow ETN (DOD), which tracks the Dow Jones High Yield Select 10 Index, which includes all the Dogs in a single trade.
Remember, investing isn’t all about capital appreciation, dividends still matter! This is especially true when appreciation is hard to come by as it was in 2015.
All of the stocks on the list above have significantly higher yields than the benchmark 10-Year Treasury. Plus, you can expect dividends to grow over time. In fact, over the long run almost HALF the total return from stocks comes from reinvested dividends alone.
Bottom line: Focusing on dividend paying stocks can be a rewarding conservative growth strategy for long term investors. The Dogs of the Dow may not always be an investor’s best friend, but it’s a user-friendly strategy worth considering for a portion of your portfolio.
Happy New Year and good investing,
Mike Burnick
P.S. The final few membership spots for Larry Edelson’s Supercycle Trader are disappearing … fast! And if you join now, Larry will pay for you to receive an additional three years, on him!
Investors are racing to join Larry as he continues to achieve incredible gains, just like the 93% success rate Supercycle Trader had last month. But that’s no surprise. The cycles Larry follows have accurately predicted EVERY major economic event since 1929!
Nearly all Supercycle Trader memberships have now been taken. Enrollment could close at virtually any moment without notice. And in any case, all enrollment must close no later than January 4, 2016.
Click this link now to see what the cycles are predicting for 2016 … and to join now while you still can!
Mike Burnick, with 30 years of professional investment experience, is the Executive Director for The Edelson Institute, where he is the editor of Real Wealth Report, Gold Mining Millionaire, and E-Wave Trader. Mike has been a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. He also served as Director of Research for Weiss Capital Management, where he assisted with trading and asset-allocation responsibilities for a $5 million ETF portfolio.
{ 9 comments }
Caterpillar took over indirectly the former General Motors railroad locomotive division. EMD (Electro-Motive Division, now Electro-Motive Diesels) has produced more locomotives than any other builder, bypassing Baldwin along the way. EMD power trains power more locomotives than any other supplier. And in this day of multi, multi billion dollar acquisitions they got it for less than a billion dollars.
It is very annoying not to be able to read the writers comments on one page as was the case prior to having to go to another page to read all his comments. go back to the old format.
The long term strategy of the Dogs of the Dow works, however, I question Mike’s return for the Dogs of the Dow for 2015. His list for 2016 had a negative return for 2015 of over 10%. Which stocks were in the Dogs of the Dow for 2015? I find it hard to believe that they had a positive 4% for the year.
Ibm pg wmt have replaced ge mcd t.
Surefire proof there is nobody that cares about my money than I do. I believe you should do wee bit more diligence than yield prior to investing. As example PG, Obama has signed into law bill that bans certain ingredients in many common household product soaps, toothpastes etc. One I know of is Olay a PG product , another is Neutrogena a JNJ. Its a rather large list of items by various manufacturers that have been banned. Im not certain just how much revenue will be lost or how much product will be disbanned. Yield?
Interesting, why has the public been kept from this. Is there a list of products and what chemicals have been banned ?
The Department of Treasury build up reserves so they can withstand the onslaught of withdrawals once people are assured they can withdraw their money the crisis will pass.
So maybe the DOD outperformed the Dow, but it did not increase in value from Jan 1 to Dec. 31. It appears that the dividends were the only source of return for DOD; however, Yahoo reports the yield as 1.32%. This does not seem like much of a strategy or proof that this was a successful strategy for 2015. What am I missing?
I’ve said it before and I’ll say it again, be very wary with the Dogs. I used the Dogs for years and loved it, but there have been fundamental changes since then. The assumption underlying the Dogs is that companies are paying dividends out of earnings and profits. For sometime now, earnings have been so meager that firms, even blue chips have had to borrow to pay dividends and fund buybacks. That stands the Dogs concept on its head. If the current market turmoil takes hold, corporate managers are likely to consider dividends to be optional.