WASHINGTON, January 3, 2017 – We expected some kind of corrective action in U.S. stock and bond markets Tuesday morning. But, as of the Wall Street opening bell, an echo of the November-December Trump-Santa Claus Rally seems to have resumed today after several days of low-volume tax loss selling in late-December.
A number of financial analysts also noticed that, given 2016’s surprising and robust year-end race to the top by nearly all stock sectors, a substantial number of shares were bought and sold (mostly sold so it seems) to rebalance retirement portfolios at the end of the year which, of course, was also the end of the business 4th quarter, at least for those entities that work on a calendar year.
In any event, it was hardly worth showing up to trade for roughly the last two weeks of 2016. However, we did show up to (defensively) sell off some stocks with reasonable gains in our portfolios to offset the horrendous losses we (and most hedge funds, BTW) experienced in the first two months of 2016.
The result, both happy and sad: we broke even for the year. 2016 was, alas, one of those years when we might have been better off putting all our funds in an S&P 500 tracking fund. On the other hand, had we not scrambled to improve our performance for the rest of the year, we could have ended up deep in the red. You have to be an optimist in this business, even if it sometimes requires some rationalizations.
We might as well begin the New Year with the real, gen-u-ine finalists in our Dogs of the Dow compilation. These are the 10 stocks in the Dow Jones Industrials that—generally by way of their poor calendar year performance—end up with the highest dividend yields (dividend divided by share price) in that widely-followed 30 member group of more or less American industrial giants.
To borrow from our previous column,
“… [the] original battle plan for investing in these downtrodden stocks is to first order and then choose your barking finalists by lining them up in order of declining yield as of COB on the last trading day of the year. In our case, that happens to be today, Friday, in the case of 2016.”
In that column we provided our semi-final list of Dow Dogs, as this list usually remains the same for the final tally. NOT.
As a result of some last minute trading action, Walmart (symbol: WMT) got bounced off the list, by not one but two Dow stocks that actually tied (rounded to two decimal places) for a yield that bumped WMT off the final list. In addition to this one, one other candidate jumped into the center of the final list.
And so, revised once again by dividend yield as of COB December 30, here are the real, the official Dogs of the Dow for 2017:
Stock/Trading Symbol followed by Current Dividend Yield:
- Verizon Communications Inc. (VZ) 4.33
- Chevron Corporation (CVX) 3.73
- Pfizer Inc. (PFE) 3.60
- Boeing Co. (BA) 44
- Cisco Systems, Inc. (CSCO) 3.44
- Caterpillar (CAT) 3.41
- The Coca-Cola Co. (KO) 3.38
- International Business Machines Corp. (IBM) 3.37
- Exxon Mobil Corporation (XOM) 3.32
- Merck (MRK) 3.19 tie
- Procter & Gamble Co (PG) 3.19 tie
As we indicated last Friday, our own adaptation of this strategy is to pick up the five first place (highest yield) stocks in the list, which would give us Verizon, Chevron, Pfizer, Boeing and Cisco. This presents a few minor dilemmas for 2017.
First of all, since AT&T (T) was bounced off the Dow a few years back, we still regard it as a virtual Dow stock because of its size. In addition, it also boasts a current yield of 4.6 percent (depending on the hour), which is higher than any other stock on the 2017 list of Dogs.
So is T a better deal than official Dow Dog Verizon? Hard to say. If you’re playing by the rules, you pick VZ. If you’re working on dividend pull, then T might be a better bet, as it’s been further sweetened by an aggressive move into the Mexican telephone and wireless market, an international expansion that should begin to pay off in 2017.
Pfizer and Boeing also reflect some potential negatives moving into 2017 that could impair performance, at least early this year. Boeing (directly) and Pfizer (indirectly) have been bad-mouthed aggressively by our incoming President, the former for the price tag on its all-new, updated Presidential airliners, traditionally dubbed “Air Force One”; and the latter—as a member in good standing of the American pharmaceutical industry—for aggressive price hikes for the drugs it manufactures.
Companies like this are subjected to what’s called “headline risk” in the investment world. Typically, more conservative investors like to stay out of such stocks until the perceived danger, real or imagined, passes. On the other hand, there’s a school of investment thought inclining to the notion that stocks like these, having been sold off due to the headline scare, are probably still great businesses anyway and should be picked up at current bargain prices. It’s a dilemma, but that’s what’s out there.
Anyhow, we’ll be considering these variables as we make our decision as to which Dogs to pick up for 2017 before moving ahead.
One final note on this strategy: A quick glance at today’s action shows us that a boatload of people are already piling into the Dogs, given its popularity as a theory. Verizon itself is up a whopping $1.12 per share even as we write this at around 1:45 p.m. ET. We never chase stocks, so we may hang around for a day or a week until prices back off somewhat. No point in buying merchandise when it’s being marked up, right?
Repeating yet another final note from Friday: We already own shares of Procter & Gamble (PG), which we picked up early in the third quarter of 2016 to balance out our portfolio, which was at the time a little thin on large-cap stocks. The stock has performed somewhat poorly since then, trading almost flat from where we bought it. But that purchase was influenced by numbers that, according to analysts, should begin to show a nice pickup in 2017 after years of stagnation, so we’ll hang around here until that happens.
We’ll be talking about other moves we plan to make this month as they occur, but those discussions are for future columns.
BTW, remember: If investing in the Dogs seems too risky, there’s always the alternative of an ETF that includes a wider variety of Dogs and has tended to be a decent performer in the past. Symbol: SDOG.
Once again, Happy New Year! And may it be a good one for the average investor, many of whom have spent the last eight years wondering if the investing business would ever be fun again.