Investing in 2015’s ‘Dogs of the Dow’

2014’s Big Board stinkers often, though not always, offer decent returns in the New Year. Here’s the 2015 list, plus an interesting kindred ETF.

"Who Let the Dogs Out?" Screen capture of Baha Men YouTube video.

WASHINGTON, January 6, 2014 – The market is off to a rotten start, just as it was at the beginning of 2014. Before it wasn’t.

This year, it’s oil prices. Apparently a bargain for some is not a bargain for all. Last year, it was…whatever.

But up or down, rain, snow, or shine, the beginning of each new year is time to take a look at that traditional old market saw, the “Dogs of the Dow.” Simply stated, the “Dogs of the Dow” are the 10 highest-yielding stocks in the Dow Jones Industrial Average (DJIA).

AKA, “The Dow,” this periodically updated list of large cap stops typically contains America’s biggest industrial companies, although lately, “industrial” can mean any number of things, given that companies like Microsoft and Cisco are in the current list and given that listed stocks don’t even have to be on the New York Stock Exchange any more.

But the “Dogs” are stocks that have generally been unloved at the end of the previous calendar year for any number of reasons. Legend is that if you invest in these relatively high-dividend behemoths, they’ve probably bottomed out the previous year and will ultimately give you decent capital gains if you buy them at the beginning of the new year and hold them until the last trading day of December.

Meanwhile, of course, you’ll get to collect those swell dividends, thus adding to your over all take. That’s assuming, of course, that these puppies actually rise in value to any appreciable degree.

Numerous studies have been done on the “Dogs” strategy over the years, and have pretty much confirmed the notion that the strategy works. Some of the time.

In any event, one can feel generally safe owning such large cap stocks in a volatile market—like the one we’re experiencing right now—knowing that these holdings are likely not to go out of business tomorrow.

We’re played the strategy with some success over the years, except that we don’t feel constrained to hold them for an entire year, particularly with unpredictable High-Frequency Traders (i.e., the headline-driven machines) making every week as dangerous as an old roller coaster.

In any event, here’s the 2015 “Dogs of the Dow” list, with the highest dividend-payers at the top and the lowest on the bottom. Yield figures are based on January 2, 2015 closing prices and are rounded to the nearest tenth. Given 2015’s current insanity, these yield figures will wobble considerably by the hour, but give you a pretty good idea as to where you stand.

We list the stock name first, symbol second, and current yield third. No point bothering with current price, as it’s obsolete the moment we enter it. But Dow stocks tend to be priced in the $30 and above range.

AT&T                    T           5.5%

Verizon                  VZ         4.7

Chevron                CVX       3.8

McDonald’s           MCD      3.6

General Electric    GE         3.6

Pfizer                    PFE       3.6

Merck                   MRK      3.1

Caterpillar            CAT       3.0

Exxon-Mobil         XOM     3.0

Coca-Cola             KO         2.9

If you indulge in the “Dogs” strategy in whole or in part, we’d probably advise that you wait on the oil-based names—Chevron, Exxon-Mobil, and Caterpillar by association—until the Saudi “Hunger Games” pricing scheme has pretty much run its course. These particular dogs may have a bit to go yet on the downside, so caution is your watchword.

As for us…for now, we’re going to stick with a slightly different “Dogs” strategy this year. There’s a relatively new ETF, the “Alps Sector Dividend Dogs” (SDOG) that tracks a broader, S&P 500-based average of high-dividend dogs that’s more diversified and thus, generally less volatile.

Here’s how the ALPS people explain it:

The investment seeks investment results that replicate as closely as possible, before fees and expenses, the performance of the S-Network Sector Dividend Dogs Index. The underlying index is a rules-based index intended to give investors a means of tracking the overall performance of the highest dividend paying stocks in the S&P 500 on a sector-by-sector basis.

Today’s price—or at least the price of this ETF as of noon EST on January 6, 2015—is $36.95 per share, giving SDOG a decent yield of 3.45%.

An extra-added bonus, at least for those trading with Schwab (like the Prudent Man): You can trade SDOG without a commission.

At any rate, we’ve done our duty and reported the 2015 Dogs of the Dow, plus one attractive alternative to the strategy.

That said, with the machines still firmly in charge of a highly irrational market, it’s everyone’s best guess as to how money will be made this year. But in most instances, the Dogs are the relatively safest ports in a market storm given that they generally don’t have much lower to go as it is, with oils perhaps a temporary exception.

Just remember, nothing is guaranteed, so caution is always in order. We currently hold a small position in SDOG and will add to it on bad days. We’ll pick into other Dogs as the occasion warrants. But right now, it’s best to tread softly on any investing strategy until the oil price panic subsides.

While you’re waiting, why not enjoy the following Y2K video, purporting to be the original version of “Who Let the Dogs Out.” This novelty song may be fading from view, except, perhaps, in Cleveland Browns territory.

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  • Terry, observers have been wailing about McDonald’s being in free fall as a company, but I find it hard to believe it won’t find a way to survive and thrive. And I’d never bet against Big Pharma in the long term. Thanks for the intel… maybe not so much for the video, haha! I don’t want to play it and give my dogs any ideas.