With the first half of 2019 nearing an end, the Dogs of the Dow strategy is keeping pace with the Dow Jones Industrial Average Index. However, the Dow Dogs for 2019 trail the return of the broader S&P 500 Index. The Dogs of the Dow strategy is one where investors select the ten stocks that have the highest dividend yield from the stocks in the Dow Jones Industrial Average Index (DJIA) after the close of business on the last trading day of the year. Once the ten stocks are determined, an investor invests an equal dollar amount in each of the ten stocks and holds that portfolio for the entire next year. The popularity of the strategy is its singular focus on dividend yield.
As the below table shows, through the market close on June 21, 2019, the Dow Dogs and the Dow Index have generated total returns of just under 16%. The broader S&P 500 Index though has returned 18.7% on a total return basis. The Communication Services sector was the biggest detractor, losing 150 basis points to the S&P 500 Index. Verizon (VZ), Facebook (FB) and Netflix (NFLX) were the biggest contributors to the underperformance. The Dow Dogs lost 88 basis points in the Health Care sector with not holding Pfizer (PFE) in the Dow Dogs being the biggest contributor to underperformance.
The value style has been out of favor for most of the last five years and dividend strategies, like the Dow Dogs, are a bit of a subset of value. Other dividend focused strategies are also lagging the broader market as seen in the below chart. Dividends and value will matter again, but the timing is difficult to predict.
Disclosure: Firm and/or Family Long JPM, MRK, VZ and XOM