The Dogs of the Dow Are Outperforming the Dow

Dogs of the Dow is one of the simplest dividend strategies to beat the market. Over the coming year, I'll track the Dogs' performance and keep you abreast of news affecting these companies.

The strategy
Dogs of the Dow is an investing strategy that buys and holds equal dollar amounts of the 10 best-yielding dividend stocks of the Dow Jones Industrial Average (INDEX: ^DJI  ) . The strategy banks on the idea that blue-chip stocks with high yields are near the bottom of their business cycle and should do much better going forward. Investors in the strategy then would not only get large dividends but also gains in the stocks underlying those dividends.

High-yield dividends
High-yield portfolios are often dismissed as inferior to their growth counterparts for various reasons:

  • Many people fear that increasing dividend yields mean lower portfolio returns.
  • Others believe that dividend payments mean that management believes the business is done growing.

Evidence compiled by Tweedy Browne refutes these falsehoods. Research shows that portfolios of high-yield dividend stocks outperform lower-yielding portfolios and the market in general. In fact, a study by noted finance professor Jeremy Siegel found that over 45 years, the highest-yielding 20% of S&P 500 stocks outperformed the S&P 500 by three times! The highest-yielding stocks turned a $1,000 investment in 1957 into $462,750 by 2002, compared with $130,768 if the same money was invested in the index.

Performance
The Dogs of the Dow returned 12.3% in 2011, which beat the Dow's return of 5.5%.

Check out the Dogs of the Dow performance in 2012 so far:

Company

Initial Yield

Initial Price

YTD Performance

AT&T 5.82% $30.24 2.37%
Verizon Communications 4.99% $40.12 (1.60%)
Merck 4.46% $37.70 3.98%
Pfizer 3.8% $21.64 1.20%
General Electric (NYSE: GE  ) 3.7% $17.91 6.92%
DuPont (NYSE: DD  ) 3.58% $45.78 7.95%
Johnson & Johnson 3.48% $65.58 (0.47%)
Intel (Nasdaq: INTC  ) 3.46% $24.25 8.78%
Procter & Gamble (NYSE: PG  ) 3.15% $66.71 0.07%
Kraft Foods 3.10% $37.36 3.51%
Dow Jones Industrial Average     1.67%
Dogs of the Dow     3.27%
Dogs Return vs. Dow (percentage points)     1.60%

Source: S&P Capital IQ as of Jan. 20.

Since my last report, the Dow Jones Industrial Average rose 2%. The Dogs of the Dow rose more than the Dow, moving from underperforming the market by 0.12 percentage points to a 1.60-point advantage.

Movers and shakers
The biggest mover since last week was DuPont, which rose 2.74%. DuPont had a banner 2011, beating earnings every quarter. DuPont reports earnings tomorrow morning; analysts expect earnings per share of $0.33 on revenue of $8.53 billion.

Earnings and news

  • Intel reported good earnings on Thursday. The company reported earnings per share of $0.68, which handily beat analyst expectations of $0.64. Intel's revenue of $13.9 billion was higher than analyst expectations of $13.7 billion.
  • General Electric reported mixed earnings on Friday. The company reported earnings per share of $0.39, which beat analyst expectations of $0.38. The company, however, missed revenue expectations, reporting revenue of just $38 billion while expectations were for $40 billion.

Upcoming

  • Verizon reports earnings tomorrow morning. Analysts expect earnings per share of $0.53 on revenue of $28.4 billion.
  • Johnson & Johnson also reports earnings tomorrow. Analysts expect earnings per share of $1.1 on revenue of $16.3 billion.
  • Procter & Gamble reports earnings on Friday. Analysts expect earnings per share of $1.08 on revenue of $22.2 billion.

More dividends
Consider the 10 tickers above along with the 11 names from a new free report from Motley Fool's expert analysts called "11 Rock-Solid Dividend Stocks." To get instant access to the names of these 11 dividend stocks, click here -- it's free.

Dan Dzombak holds no position in any company mentioned. Click here and like my Facebook page to follow my investing ideas. The Motley Fool owns shares of Intel and Johnson & Johnson. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Procter & Gamble, Pfizer, Intel, and Johnson & Johnson; creating a diagonal call position in Johnson & Johnson; and creating a bull call spread position in Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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9/17/2014 4:29 PM
^DJI $17156.85 Up +24.88 +0.15%
DOW JONES INDUSTRI… CAPS Rating: No stars
DD $69.25 Up +3.42 +5.20%
E.I. du Pont de Ne… CAPS Rating: ****
GE $26.27 Up +0.06 +0.23%
General Electric C… CAPS Rating: ****
INTC $34.98 Up +0.05 +0.14%
Intel CAPS Rating: ****
PG $84.16 Up +0.08 +0.10%
Procter & Gamble CAPS Rating: ****

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