What is the Dogs of the Dow Strategy?
Investors have used The Dogs of the Dow strategy for decades as a way for value and dividend investors to buy beaten-down blue-chip stocks with healthy dividend yields. The strategy is simple, easy to implement, and only needs trading at the beginning of each year. Here’s how it works.
After the end of each calendar year:
- Rank all 30 stocks in the Dow Jones Industrial Average stock index in order of dividend yield.
- Invest equal money in each of the ten highest dividend-yielding stocks.
- Sit back, collect your dividends, and repeat the process at the beginning of the following year.
Using the Dogs of the Dow strategy may force you to sell certain stocks. Hopefully, you sell stocks because their price has increased to a point where their dividend yield no longer ranks the stock in the top ten. You’ll book gains in the stocks and replace them with the newest Dogs of the Dow for the year.
Long-term value investors like the Dogs of the Dow strategy because it keeps them focused on buying blue-chip stocks at low prices and selling them at high prices. Since the strategy only needs a few trades per year (maybe even zero), the trading cost to implement the Dogs of the Dow is very low.
The Dogs of the Dow adds a third component to buy low, sell high—collect dividends. As dividends pile up during the year, an investor in Dogs of the Dow will have extra cash to deploy next year. Here is a closer look at the Dogs of the Dow in 2022.
Dogs of the Dow in 2022: Mid Year
This article was written in late June of 2022. Yes, the Dogs of the Dow asks for end-of-the-rebalancing. But that doesn’t mean you have to wait until January to start. Though, if you were a seasoned veteran using the Dogs of the Dow, here’s what your account would’ve looked like in January.
- Dow (NYSE: DOW) – The #1 dividend yield in the Dow Jones Industrial Average had the same name. By the start of 2022, Dow had a dividend yield of 4.94%. It ranked third in the 2021 Dogs of the Dow.
- Verizon (NYSE: VZ) – The stock fell shy of Dow with a dividend yield of 4.93%. Since Verizon remained in the Dogs of the Dow for 2022, investors did not need to trade it.
- IBM (NYSE: IBM) – Though IBM moved down two spots from 2021, it stayed in the 2022 Dogs of the Dow.
- Chevron (NYSE: CVX) – Chevron stock fell from its 2021 #1 ranking. The good news is the stock was up, but not enough to drop off the list.
- Walgreens Boots Alliance (NASDAQ: WBA) – Walgreens began 2022 with a dividend yield of 3.66% and moved down one spot from its #4 ranking in 2021.
- Merck (NYSE: MRK) – The stock sported a yield of 3.6% in January. It also moved up from its #8 position in 2021.
- Amgen (NASDAQ: AMGN) – Amgen stayed on the 2022 Dogs of the Dow with a yield of 3.45%
- 3M (NYSE: MMM) – With a yield of 3.33% in January, 3M moved down two spots.
- Coca-Cola (NYSE: KO) – Coca-Cola’s 2.84% yield barely made the cut in 2022.
- Intel (NASDAQ: INTC) – Intel was the only newcomer to the Dogs of the Dow in 2022, replacing Cisco Systems (NASDAQ: CSCO).
Best Dogs of the Dow Stock to Buy
Intel could be one Dogs of the Dow stocks that could jump in the coming years as it executes its turnaround.
Intel is one of the leading chip makers in the US. The company has a new CEO and ambitious plans to build chip factories to meet increasing demand in the coming years. Intel has committed tens of billions of dollars to build chip factories in Arizona, Ohio, Malaysia, and Europe. Chip demand should increase in the long term. Intel’s chips could go into growing industries like data centers, electric vehicles, smartphones, and personal computers.
Though the stock is down almost 33% over the last year, its dividend yield has jumped to 3.78%–even higher than in January. Intel was the lone addition to the Dogs of the Dow in 2022, and its higher yield may allow it to stick around for a while. If it does, the stock may be a gainer and a dividend payer in the long run.
Two More Dogs of the Dow Stocks to Buy
Verizon and Chevron are two Dogs of the Dow stocks that could move higher. Let’s take a closer look.
Verizon is one of the US’s three biggest national wireless phone service providers. In addition to AT&T (NYSE: T) and T-Mobile (NASDAQ: TMUS), Verizon provides cell phone coverage and fiber connections to consumers and businesses all over the country. Within the last few years, the Federal Communications Commission (FCC) sold a large allotment of wireless spectrum. Verizon bought the largest chunk of spectrum by far.
Verizon plans to put the spectrum to use to advance its 5G service, provide home internet, and mobile edge computing to businesses operating on the cloud. Verizon stock is down slightly for the year but ahead of the S&P 500 stock index. Likewise, its dividend yield has moved up to over 5%.
Chevron is an oil and gas company involved in every corner of the industry. It produces, refines, markets, and transports oil throughout the world. Famous investor Warren Buffett has owned Chevron stock in his company Berkshire Hathaway. In the first quarter of 2022, Berkshire Hathaway bought significantly more shares of Chevron stock.
Chevron stock has moved up nearly 25% this year. Due to the price increase, the stocks dividend yield has decreased to 3.85% from the beginning of the year.
Investing in Dividend Stocks
If you’re not interested in fully implementing the Dogs of the Dow strategy, you could get some great ideas from the list above. However, it’s important to do your due diligence before making any investment decisions! Utilize investment newsletters and expert analysis to better understand the market and how you can enhance your portfolio during difficult times.
About BJ Cook
BJ Cook is a long-time stock nerd. He has held several roles in the equity research world and earned the right to use the CFA designation in 2014. When he’s not writing for Investment U, you can find him searching for new investment ideas. Outside the investment community, BJ is a die-hard Cubs fan.