WASHINGTON, January 2, 2017: We chose to enjoy the year-end holidays for a change, given the usual lack of meaningful trading action during the last week of December. We return today, the first trading day of 2018, to unveil our official list of the 2018 Dow Dogs.
But before we opine on 2018’s potential Dow Jones superstars, let’s get right to the list of 2018 Dow Dogs – stock first, then trading symbol, then dividend yield at the current share price:
- Verizon (VZ): 4.44%
- IBM (IBM): 3.93%
- Pfizer (PFE): 3.76%
- Exxon Mobil Corporation (XOM): 3.67%
- Chevron Corporation (CVX): 3.43%
- Merck (MRK): 3.41%
- Coca-Cola (KO): 3.25%
- Cisco (CSCO): 3.01%
- Procter & Gamble (PG): 3.00%
- General Electric (GE): 2.74%
Over the years, we’ve run many columns on the Dow Dogs and various other “Dog” lists that attempt to build upon or re-invent the longstanding Dogs of the Dow strategy.
The over all rationale for purchasing Dow Dogs stocks is more or less as follows:
- Candidates for Dogs of the Dow are picked from a select list of stocks – those stocks that comprise the Dow Jones Industrial Average (DJIA) of 30 stocks. In turn, these stocks are, in the main, numbered among the biggest and best-capitalized companies in America.
- The most basic Dow Dogs tactic is to look at the stats of all 30 stocks as of their closing price on the last trading day of a given year. (In the case of 2017 just-ended, that was last Friday, December 29.) The ten stocks in this list with the highest dividend yield are your 2018 Dow Dogs.
While this theory has developed many permutations over the years, this is the theory at its most basic. For other variations, you can easily explore any number of them via internet search.
To pinch in on this theory further, here’s a good short summation of the game via the Daily Forex:
“[T]raders purchase equal dollar amounts of the ten stocks with the highest dividend yield on the Dow Jones Industrial Average, with the expectation that they’ll profit both from the dividends and the increase in stock price over the year. Looking at the long-term charts, the Dogs of the Dow tend to outperform the full Dow, and have enjoyed an average annual total return of 8.6 percent from 2000 through 2016, compared to the average annual return of the Dow, which was 6.9 percent in the same period.
“In 2017, the Dogs of the Dow had an average dividend yield of 3.6 percent, and 2018’s picks seem to have an average yield of 3.1 percent. However, this shouldn’t deter committed long-term traders; most Dogs of the Dow are expected to raise their dividends in the coming year, and most are predicted to have higher price targets as well.”
Sound good? Well, it often is, but not always. The business rationale of the Dogs of the Dow theory (and related woofers modeled on it) is that larger stocks that pay decent dividends can, like any other company, have a bad or a very bad year. But having done so, they’re likely to make every effort to recover to attract their investors back in the New Year. In other words, like all Dogs of the Dow stocks, the 2018 Dow Dogs will take a run at the brass ring, but some will certainly stumble.
Take GE for example, in the 2018 Dow Dogs list above. That industrial giant faltered over the last few years under its habitually underperforming CEO, Jeff Immelt. The company’s new CEO has assessed the business and has decided to slim down GE’s mission, which, over the years, had been obscured by running too many businesses – many of them involving aging products and technologies – and too much kowtowing to the ultimately business-hostile Obama administration.
Beginning now, GE will jettison remaining businesses it deems unrelated to its desired industrial and healthcare core and will begin to rebuild its balance sheet with an eye toward productivity.
As GE slashed costs last autumn, it also made a bold move by slashing its generous dividend in half. This likely necessary action, of course, immediately eviscerated the stock as dividend-loving investors who owned GE shares headed for the hills as they dumped shares indiscriminately.
Those shares may have bottomed in the waning days of December when they hit their low for 2017: $17.25 per share. That was a pretty big comedown from their 2017 high of $31.845: a crushing 43.78 percent loss for the calendar year.
With GE shares having fallen so low, even the company’s big dividend haircut – from a quarterly dividend of $0.24 per share down to $0.12 per share – still gives you a current payout of 2.75 percent on an annual basis. In terms of the Dow Dogs theory, that’s good enough to give this battered giant the final place – 10th – in the 2018 Dow Dog Howl-athon.
So what’s a potential 2018 Dow Dog investor waiting for?
Given that many Dow Dog stocks have achieved their status by being indiscriminately dumped by investors late in the previous year, that’s evidence that they may have been oversold. Ultimately (theoretically), that indiscriminate dumping in the previous year can lead to a nifty bounce and perhaps higher gains in the current New Year.
Meanwhile, you get a pretty decent dividend “Wile-U-Wait,” as those old magazine ads from early in the previous century used to say.
There are, of course, no guarantees that this theory will work flawlessly. But it does tend to supply at least a few relatively predictable winners, all things considered.
If you don’t have the time and patience for this, there is a decent ETF – symbol SDOG – that picks a wider range of stocks for its portfolio that still essentially follow the precepts of the Dow Dogs theory.
Whatever you decide, if indeed you decide anything at all, whatever Dogs you may acquire are supposed to be held for exactly a year. But that’s up to you.
Full disclosure: I currently hold shares of Procter & Gamble (PG), having picked them up prior to learning the company was a likely Dow Dogs candidate. I continue to hold them. I’ve been in and out of Exxon-Mobil (XOM) and Chevron (CVX) and am likely to climb into them again very soon if I can get a decent price break. I may add Verizon (VZ) and Pfizer (PFE) as well, although at this time, I consider myself overcommitted in pharmaceutical stocks, via my unfortunately too-large investment in Allergan’s Convertible Preferred “A” shares. I will also add shares of SDOG to the portfolio from time to time, given that my discount brokerage will trade any number of shares of this ETF without commission.
Finally, I intend to get into GE as well. I hated this company under Immelt, an Obama toady who, I think, wrecked his company to gain favor with that business-hating administration. It has been a rotten, bitterly disappointing investment for years.
With Immelt now tossed on the dustbin of history, however, it’s genuinely possible that GE can return once again to some semblance of its glory days.
But caution: That move may take at least two years, rather than one. This would make any purchase of GE shares an “extended play” 2018 Dow Dogs stock that could very well appear on the 2019 Dog list as well. GE has a long way to go before it gets back to its glory days.
In conclusion: Patience is the watchword for any GE investors, including me, who dare to take this badly beaten puppy on in 2018.