For me, December means eggnog, presents and “Dogs of the Dow” analysis. For those of you unfamiliar with the last item on the list, it’s not a look at the worst-performing Dow stocks. (In case you are interested in that though, as of 12/21, it’s looking like the honor will go to Nike, down roughly 18% year-to-date.)
Dogs of the Dow is an investing strategy popularized by Michael O’Higgins in his 1991 book, “Beating the Dow.” His philosophy is to buy the 10 members of the Dow Jones Industrials Average with the highest dividend yields in January. It doesn’t work every year, but investment research firm Bernstein points out that 2016 is looking good so far. The Dogs are up almost 18% in 2016, topping the performance of the Dow itself. Plus, take into account that the higher dividends from the Dogs will lead to an even larger total return over the index.
Could 2017 be different for the Dogs? Chasing yield in 2016 led many dividend-paying stocks to rarefied levels this summer. Before financials decided to take off to the top of the leader board, Telecom and Utilities—both chock full of dividend names—led the sector pack with returns of 19% and 17% midway through the summer.
So, dividend stocks are already high. Plus, when rates rise, as they are gradually supposed to do if you believe the Fed, dividend stocks could weaken. All of that said, if you are interested in taking the plunge and employing the Dogs of the Dow Strategy, here’s a shopping list as of today: Verizon, Pfizer, Cisco, Boeing, Chevron, Coca-Cola, IBM, Caterpillar, ExxonMobil and Procter & Gamble.
Disclosure: Verizon is in the process of acquiring Yahoo Finance’s parent company, Yahoo.
Jen Rogers is the anchor of Yahoo Finance’s The Final Round. You can follow her on Twitter at @JenSaidIt
