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2021 Dogs of the Dow and other Dogs of the market. Who let the dogs out??

Written By | Jan 4, 2021
2021 Dogs of the Dow

Image by John-Gerhard Stolz from Pixabay. CC 0.0 license. In the public domain. Modified to fit CDN format.

WASHINGTON – So, as the song lyric goes, “Who let the dogs out?” Well, Mr Market did, although the NFL has offered any number of dog teams, dog games and dog (anti-US) players this year. But this is generally a stock market column. So today’s column, revised just after Mr Market’s 2021 Opening Day ceremonies, offers readers and investors CDN’s final 2021 Dogs of the Dow list and some associated ETF Dogs that build on the original Dogs theory.

Meanwhile, Monday, January 4, 2021 marks the first trading day of the New Year. After a celebratory opening, market averages promptly crashed, likely due to mass profit-taking of 2020 gains. Traders likely held off on this to roll those capital gains to the new year, avoiding 2020 tax consequences. The media, of course, blames it on Covid-19 fears. Assuming the vote interferers have a winning hand, we expect the Covid panic to end after Inauguration Day. For some reason.

But let’s get back to Mr Market.

Laying out the Dogs of the Dow strategy

So what are the Dogs of the Dow? And why do many investors think they’re important? You can find a fairly succinct and understandable run-down on this classic investment strategy in Investopedia. The key points of the strategy are as follows.




“[The] Dogs of the Dow [investing strategy] relies on the premise that blue-chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company. In contrast, the stock price does fluctuate throughout the business cycle.

“This should mean that companies with a high dividend relative to stock price are near the bottom of their business cycle, so their stock price likely would increase faster than companies with low dividend yields. In this scenario, an investor reinvesting in high-dividend-yielding companies annually should outperform the overall market.”

Italics are ours. If you want more information on this strategy, you can find it right here. Additional details pop up if you click on the associated links.


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How the strategy actually works. Or doesn’t…

But, in brief, the theory works this way. After the last trading day of the previous year, traders, investors and assorted math nuts look at the Dow Jones Industrial Average (DJI or DJIA) of thirty large American company stocks and rank them in the order of dividend yield. They then choose the top 10 Dow stocks in terms of yield, ranking them from the highest to the lowest. The yields are computed as of the closing price of each stock on the last trading of the year.

What you get is a list, in descending order, of the New Year’s official Dogs of the Dow: The top 10 highest yielding stocks in the Dow. To employ the classic strategy, you then buy an equal number of shares in all 10 stocks, sit on them for a year, collect all those fat dividends, and sell on the last trading day of 2021, and Voilà! You’ve collected a batch of uncommonly high dividends at worst, and, at best, you’ve made handsome capital gains on these stocks as well, which simply compounds your fantastic return.

Your mileage may vary

Of course, as always, nothing involving Mr Market is guaranteed and your mileage may vary. Considerably. The strategy will fail many times over the decades, just like every other investing strategy ever invented. But the attractive thing is that these are buy and hold type stocks and they’re generally companies that are unlikely to go out of business anytime soon.

Even if you don’t cop those hoped-for capital gains, the dividends are still a swell, “Wile-U-Wait” feature. They handily beat the pitiful 0.01% (or less) interest you’re getting on your “free” checking account at your friendly neighborhood bank. (Assuming your Dogs don’t suffer a massive price plunge during the year.)

At any rate, that’s the strategy, and it remains a popular one for conservative or just plain nervous investors.

As for those 2021 Dogs of the Dow…

While I could have run my own final tabulations to uncover CDN’s 2021 Dogs of the Dow, I decided to play it safe. Our CDN  list uses the final numbers run by 24/7 WallSt.com, since I’m a bit math-challenged myself.

“Here’s the final list of the Dogs of the Dow, based on a screen run after markets closed on December 31. We’ve rounded the dividend yield to the nearest tenth. One last note on the Dogs: In August, the Dow dropped Exxon Mobil, Pfizer and Raytheon (formerly United Technologies) and added Salesforce, Amgen and Honeywell.



    1. Chevron Corp. (NYSE: CVX): 6.1%
    2. International Business Machines Corp. (NYSE: IBM): 5.2%
    3. Dow Inc. (NYSE: DOW): 5.1%
    4. Walgreens Boots Alliance Inc. (NASDAQ: WBA): 4.7%
    5. Verizon Communications Inc. (NYSE: VZ): 4.3%
    6. 3M Co. (NYSE: MMM): 3.4%
    7. Cisco Systems Inc. (NASDAQ: CSCO): 3.2%
    8. Merck & Co. (NYSE: MRK): 3.2%
    9. Amgen Inc. (NASDAQ: AMGN): 3.1%
    10. Coca-Cola Co. (NYSE: KO): 3.0%”
What if you don’t have enough money to buy all the 2021 Dogs of the Dow?

Simple. Strategy #1, which we’ve often used, is to just pick the top 5 yielding 2021 Dogs of the Dow and buy those in equal amounts. Statistically, this is a bit riskier than buying the whole list. But what the heck? At least the dividends will impress your friends.

But a more interesting strategy might be to pick up whatever number of shares you can afford in ETFs that broaden out the original Dogs of the Dow Strategy by buying lists of the top Dogs in all investment sectors followed by the S&P 500. This broader strategy may provide a lower collective yield. But, given the larger number of shares in such ETFs, you can lessen your risks most of the time, unless markets take a real header. Like they did in 2008-2009.

The most popular “dog” in this broader, ETF-based solution is the ALPS Sector Dividend Dogs. It trades, appropriately, under the symbol “SDOG.” (NYSE: SDOG). Current yield: 4.33%

Even Doggier International ETFs

SDOG’s brother and sister dogs are IDOG (the International stock version yielding 5.33%) and EDOG (the “emerging market” flavor, featuring stocks from mostly third-world countries that trade similarly, and yielding 5.67%).

Both these Doggy ETFs also trade on the NYSE (Arca). That said, I regard them as rather more risky than SDOG. Particularly EDOG, as it currently holds volatile Chinese stocks, some of which could get delisted on US exchanges. As a result of the international risk factor, I’ve never really participated in either of these as part of my own, highly diversified investment strategy. (However, I did pick up a few shares of EDOG this morning as an experiment, just for the heck of it. I’ll let you know how it goes.)

Anyhow, bargains aside, let’s see what the first trading day of the 2021 market brings us before we fully commit to any new strategy. (Alas, after opening up nicely, the averages tanked mid-morning on Monday, with the Dow currently down over 600 points. Profit taking after 2020 gains? We’ll see.)

Final words

Please note that the official way to “do” any flavor of the 2020 Dogs of the Dow strategy is to do it ASAP, early during the first month of the new trading year. Then hold these shares for a year and sell them on the last trading day of the year. If you poke around and take your time, and if Mr Market decides to be bullish, even after today’s January 4 smackdown, you could miss the ride.

That’s because the whole strategy counts on your buying these share at bargain prices after they’ve been beaten down to the max by tax-loss selling in late 2020. Waiting too long, unless a vicious bear market begins the new year, can make any Dogs strategy a dubious investment.

One other tip: I’ve frequently bailed on these stocks after their first run-up. Just in case they don’t recover very much in the New Year. My problem is that I distrust anyone and any investment theories other than my own.

Good luck playing the game in 2021! And remember: The first week of January in Washington, D.C., might saddle some of us with more investment problems to solve than we think, so stay tuned. MAGA fans are already gathering in the Nation’s capital city. Antifa / BLM (probably in MAGA disguise) can’t be far behind.

– Headline image: Still under house arrest? Image by John-Gerhard Stolz from Pixabay. CC 0.0 license. In the public domain. Modified to fit CDN format.

 

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17