2022 was a horrible year for most stock investors. An extended bear market hit major benchmarks, with high-growth stocks taking the brunt of the damage. The Nasdaq Composite finished 2022 down 33%, and even the broader S&P 500 index lost 19% on the year.
By that standard, the 9% loss in the Dow Jones Industrial Average (^DJI +1.79%) was a relatively good performance. Yet those who narrowed their look at Dow stocks to focus on top dividend payers in the popular index fared even better, as the strategy known as the Dogs of the Dow made money in 2022.
Image source: Getty Images.
The success of the Dogs of the Dow has a lot of investors taking a closer look at the strategy to see if it can keep outperforming in the coming year. Without further ado, here are the 10 stocks that will comprise the Dogs of the Dow for 2023, along with an explanation of the strategy behind them.
The 2023 Dogs of the Dow
|
Stock |
Dividend Yield |
Rank in 2022 |
|---|---|---|
|
Verizon |
6.62% |
2 |
|
Dow Inc. |
5.56% |
1 |
|
Intel |
5.52% |
10 |
|
Walgreens Boots Alliance |
5.14% |
5 |
|
3M |
4.97% |
8 |
|
IBM |
4.68% |
3 |
|
Amgen |
3.24% |
7 |
|
Cisco Systems (CSCO +2.07%) |
3.19% |
- |
|
Chevron |
3.16% |
4 |
|
JPMorgan Chase (JPM +0.11%) |
2.98% |
- |
Source: DogsoftheDow.com.
How to follow the Dogs of the Dow strategy
The primary benefit that investors get from using the Dogs of the Dow strategy is that it takes almost no time to set up and maintain. At the beginning of the year, you just have to take a look at the 10 Dow stocks that finished the previous year with the highest dividend yields. Then you invest equal amounts in each of the stocks.
That's all it takes, and there's nothing more to do until the end of the year. At that point, you can either close out the strategy or continue into the next year. If you choose to keep investing in the Dogs of the Dow, you'll need to replace any stocks that are no longer among the 10 highest-yielding Dow dividend stocks and purchase shares of any new stocks on the list. You'll also need to rebalance your holdings of stocks that stay on the Dogs list to get back to equal weightings.
Out with the old, in with the new
You can see the value emphasis in the Dogs of the Dow strategy from the dividend stocks that joined and left the list in 2023. Merck (MRK +3.08%) had a huge year, with its stock jumping 45% as prospects for several of its approved and pipeline drugs improved dramatically in 2022. The soaring share price sent Merck's dividend yield down almost a full percentage point. Similarly, Coca-Cola (KO +0.74%) stock rose 8% on strong investor appetite for consumer staples stocks.
NYSE: MRK
Key Data Points
By contrast, both stocks new to the Dogs fared poorly in 2022. Cisco Systems (CSCO +2.07%) got caught up in the tech downturn, and even though its 25% drop was small compared to those of many of its peers, it was enough to boost its dividend yield nearly a percentage point to 3.2%. Similarly, JPMorgan Chase (JPM +0.11%) shares suffered when a combination of rising interest rates and the tough market environment for investment banking dealt the financial giant a double whammy.
Will 2023 be another great year for the Dogs of the Dow?
The Dogs of the Dow strategy produced a price change of -1.8%, beating the Dow's performance by about 7 percentage points. Moreover, when you add the roughly 4% yield that the Dogs of the Dow paid, they saw their return move into positive territory at around 2%. It was the first year since 2018 that the Dogs outperformed the Dow Jones Industrials.
There's a lot of uncertainty about how 2023 will go for stock investors. Fears of a recession have many investors gravitating toward value and dividend stocks once again. At some point, though, growth stocks will rebound.
Yet for some investors, the prospect of owning solid stocks with an average dividend yield of 4.4% is too good to pass up. Regardless of whether the Dogs of the Dow outperform the stock market in 2023, many will find that the simple strategy gives them an easy way to get market exposure without a lot of hassle.
