Are the Dogs of the Dow Still in the Race?

Will the Dogs beat the Dow in 2013 -- or is their bark worse than their bite? 

The Dogs of the Dow strategy involve investing equal amounts into the 10 highest-yielding dividend stocks on the Dow Jones Industrial Average (DJINDICES: ^DJI  ) . Dogs are selected on December 31 and held until the same date the next year. At that point, the new batch of best-performers can shuffle in to replace those that fell in rank.

There are some risks to the Dogs of the Dow, but the ease of the strategy continues to attract investors. How have the current class of Dogs performed year to date?

Dog show
Here's a look at the 2013 Dogs of the Dow, including the dividend yield and price as of December 31, 2012. 


2012 Yield

2012 Price

Current Price*

Per. YTD




$33.69      3.76%




$46.95    12.05%




$22.19    10.89%

Merck  (NYSE: MRK  )


$40.94 $47.11     17.25%



$25.08 $28.00    14.47%

DuPont (NYSE: DD  )


$44.98 $56.75    29.33%

Hewlett-Packard (NYSE: HPQ  )


$14.25 $16.67   56.18%

General Electric


$20.99 $23.18    12.25%



$88.21  $94.84       9.24%

Johnson & Johnson (NYSE: JNJ  )


$70.10 $86.17  25.78%

Sources: S&P Capital IQ and Finviz. *Current price and YTD performance as of market close Aug. 27.

The Dow is up 12.8% year to date compared to a 19.1% average for the Dogs, which makes for a difference of 6.3%.

Hewlett-Packard has driven the Dogs with its rise from the near-dead. The technology company performed better than expected in the first and second quarters, but the third quarter fell short, and Hewlett's shares began a pullback. Remove Hewlett-Packard's wild ride, and the Dogs average drops to 15%. 

What's driven the other Dog leaders? 
DuPont's year has included the strong performance of its Agriculture segmentand a big investment from Nelson Peltz, the billionaire head of Trian Fund Management.Investors have stayed optimistic thanks to DuPont's talks of divesting its (ironically) underperforming Performance Chemicals segment.

Johnson and Johnson benefits from having its hands in multiple pots, which spreads the risk. The pharmaceutical side had a victory earlier this year when it received Food and Drug Administration approval for Invokana -- a SGLT2 diabetes treatment that's first in class for the United States.  

Merck is suffering from the patent expiration of $5 billion asthma drug Singulair last year, but the company's HPV and diabetes products continue to show strength. And investors cheered the installation of new R&D head Roger Perlmutter, who will work to make Merck's pipeline look healthier.

How will the year end? 
Last year, the Dogs had a total return of about 5.7% compared to 7.3% for the Dow. Here's a comparison for the previous five years: 


This year's Dogs should at least match 2011's performance -- assuming nothing happens to implode Hewlett-Packard before the end of the year. 

While the Dogs strategy doesn't require any upkeep, investors still need to pay attention to the overall investing climate, or a hard year might sneak up on the Dogs, such as 2008's recession reaction. 

Foolish final thoughts 
It's important to do your research before trying a new investment strategy -- even if that strategy boils down to "buy and hold for a year." The Dogs of the Dow has its limits, but investors may find the benefits worth that risk. And the current Dogs should continue their streak of outperforming the Dow. 

Read/Post Comments (1) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 11, 2013, at 7:34 PM, Hart792 wrote:

    I amy have missed it. But you also have to consider that the Dogs, by definition, pay higher dividends than the other DOW stocks. So a Dog vs non-Dog coparison really need to count dividends as well

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9/23/2016 4:55 PM
^DJI $18261.45 Down -131.01 -0.71%
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DuPont CAPS Rating: ****
HPQ $15.09 Down -0.03 -0.20%
HP CAPS Rating: ***
JNJ $118.81 Down -0.65 -0.54%
Johnson and Johnso… CAPS Rating: *****
MRK $62.96 Down -0.06 -0.10%
Merck and Co. CAPS Rating: ****