Current Dogs of the Dow Stocks to Watch in 2023

As we head into 2023, investors are looking for solid dividend-paying stocks to add to their portfolios. This is where the Dogs of the Dow strategy comes in, focusing on the 10 highest-yielding stocks in the Dow Jones Industrial Average.

The Dogs of the Dow approach has been around since 1994, when Michael B. Ward, a financial advisor, noticed that the highest-yielding stocks in the Dow Jones Industrial Average tended to outperform the overall market over the long term.

The strategy involves buying these high-yielding stocks and holding them for the entire year, allowing them to benefit from their dividend payments and potential long-term growth.

Some of the current Dogs of the Dow stocks to watch in 2023 include Procter & Gamble, with a dividend yield of 2.48%, and Coca-Cola, with a dividend yield of 3.11%.

The Dogs of the Dow strategy relies on the premise that blue-chip companies don't alter their dividend to reflect trading conditions, making dividend a measure of the company's average worth.

This means companies with high dividend yields relative to their stock price are likely near the bottom of their business cycle, and their stock price may increase faster than companies with low dividend yields.

The strategy involves investing in these high-dividend-yielding companies annually to potentially outperform the overall market.

Here are the 2023 Dogs of the Dow, listed in order of their dividend yield:

The Dogs of the Dow strategy relies on the premise that blue-chip companies don't alter their dividend to reflect trading conditions.

This means that companies with a high dividend relative to stock price are likely near the bottom of their business cycle, making their stock price likely to increase faster than companies with low dividend yields.

The strategy involves selecting the 10 highest dividend-yielding stocks in the DJIA after the stock market closes on the last day of the year.

These stocks are then invested in equally on the first trading day of the new year, and the portfolio is held for a year before repeating the process.

The 2023 Dogs of the Dow are listed below:

The goal of the strategy is to outperform the overall market by investing in these high-dividend-yielding stocks, and historical results suggest that it can be a low-maintenance, long-term strategy that mimics the performance of the DJIA.

In the ETF market, there are various tracking strategies that aim to replicate the performance of a specific index or sector. The Invesco Dow Jones Industrial Average Dividend ETF (DJD) is one such example that focuses on dividend investing.

The DJD ETF invests in the Dow Jones Industrial Average, a benchmark index that tracks the performance of 30 major US companies. This ETF provides investors with a way to gain exposure to a broad range of dividend-paying stocks.

There isn't a direct ETF that tracks the Dogs of the Dow strategy, which invests in the top 10 dividend-performing companies in the Dow. However, the ALPS International Sector Dividend Dogs ETF (IDOG) offers a similar strategy with a dividend focus on the Dow.

The Dogs of the Dow strategy is a straightforward formula designed to perform roughly in line with the Dow. The strategy selects the top 10 highest dividend-yielding stocks from the Dow Jones Industrial Average (DJIA) as its investment portfolio.

To implement the strategy, you need to select the 10-highest dividend-yielding stocks in the DJIA after the stock market closes on the last day of the year. Then, on the first trading day of the new year, invest an equal dollar amount in each of them. Hold the portfolio for a year, then repeat the process at the beginning of each subsequent year.

The premise behind the Dogs of the Dow investment strategy is to pick companies near the bottom of the business cycle by using dividend yield as a proxy. This is because companies near the bottom of the business cycle tend to have a lower share price, which results in a higher dividend yield.

The formula for dividend yield is: Annual Dividend / Share Price. Companies that list on the Dow, termed “blue-chip stocks,” are well-established and financially sound businesses with a market capitalization in the billions. These companies usually do not alter their dividend policies.

Here are the key elements of the Dogs of the Dow strategy:

The Dogs of the Dow investment strategy was popularized by American money manager and author Michael B. O’Higgins, who first introduced the concept in his book Beating the Dow in 1991.

The Dogs of the Dow strategy has shown a respectable performance over the years, despite experiencing greater losses during the financial crisis of 2008.

In the decade from 2013 to 2023, the Dogs of the Dow had a trailing total return of 10.02%, which is similar to the Dow Jones Industrial Average's (DJIA) trailing total return of 11.48%.

The strategy made up ground after the financial crisis and turned in a respectable performance for the decade, with a very similar result to the DJIA.

However, in the last five years, from 2018 to 2023, the Dogs of the Dow trailed the DJIA with a wider gap, turning in trailing total returns of 5.29% compared to the DJIA's trailing total return of 8.39%.

Dividend stocks are having a tough year, down nearly 5% in the SPDR Portfolio S&P 500 High Dividend ETF.

The average S&P 500 stock that pays a dividend is up just 0.81% this year.

Investors are flocking to stocks that don't pay dividends, which are up 19% on average.

The Dogs of the Dow are also underperforming, up an average of just 2.8% this year.

This is the widest lag behind the market since 2006, according to Bespoke Investment Group.

The Dogs of the Dow have trailed the market in four of the past five years, a concerning trend for investors.

The Dogs of the Dow strategy has a proven track record of outperforming the market over the long term. For the twenty years from 1992 to 2011, the Dogs of the Dow matched the average annual total return of the DJIA (10.8 percent).

The Small Dogs of the Dow, which are the five lowest-priced Dogs of the Dow, outperformed both the Dow and S&P 500 with an average annual total return of 12.6 percent. This is a significant advantage for investors who can hold on to their investments for the long haul.

In recent years, the Dogs of the Dow strategy has also shown its potential for strong returns. In 2018, the portfolio generated 27% in total returns, outperforming the Dow's 21% total returns. Four of the Dogs returned more than 45% that year.

However, it's worth noting that the results can be widely divergent from year to year. In 2019 and 2020, the Dogs of the Dow portfolio generated 18.7% and (7.9%) in total returns respectively, while the Dow returned 25.3% and 9.7% in those years. This highlights the importance of a long-term perspective when investing in the Dogs of the Dow.