Dogs of the Dow 2022

.

I first heard of the Dogs of the Dow strategy back when Motley Fool was just becoming famous, largely based on the out-sized success of their investment in AOL as the Internet Bubble continued to swell. (Whew! There’s a lot of investing history, and investing lessons in that one sentence.) The Foolish Four was a supposed improvement on the Dogs of the Dow strategy. I never invested that way, and it turns out to have been a good move.

As the year rolls over to 2022, there come the obligatory articles about which stocks are the 2022 Dogs of the Dow, and whether the Dogs of the Dow is a good investment strategy. So, I thought we’d take a quick look.

What Is the Dogs of the Dow Strategy?

dogs of the dog - doggie in a field of red flowers

The Dogs of the Dow is an investment strategy where an investor invests in the 10 stocks in the Dow Jones Industrial Average that have the highest dividend yield as of 12/31 on the first trading day of the year in equal amounts and then holds the stocks for the full year before repeating the process. The idea (which used to be true, but is less so these days) is that blue chip stocks like those in the Dow do not adjust their dividends based on market conditions. So, the dividend reflects the actual, or “true” value of the company. The price, on the other hand, fluctuates on a daily basis based less on the intrinsic value of the company, and more on how investors view the prospects for its stock price in the future. Thus, the highest-yielding stocks are the companies that have the least “future promise” built into their stocks.

Does the Dogs of the Dow Strategy Work?

It depends on what you mean by “work.” By definition, the Dogs of the Dow investing strategy is a value investing strategy. So, when value stocks do well, so does the Dogs of the Dow. When value stocks do poorly, so does the Dogs of the Dow. If you measure success by the overall Dow, for example, the Dogs of the Dow “lost” or returned less than the full Dow for 2021 when growth stocks were more in favor than value stocks. It also “lost” to the Dow in 2019 and 2020.

Before you decide it’s a worthless strategy, you might be interested to know that it “won” from 2010 to 2017.

Check out my Wealthfront review.

Most importantly, it is important to remember that the Dogs of the Dow isn’t a one-year strategy. The idea is to do the same thing for multiple years during which years like 2019, 2020 and 2021 would be balanced out. Remember, in the years the strategy “lost” means that, in theory, those stocks are still primed to come back.

The Dogs of the Dow does beat the standard Dow, if you compare it as an ongoing strategy over 10 years, for example.

Who Are the Dogs of the Dow 2022?

The 2022 Dogs of the Dow are

  • Dow (The chemical company, not the Dow Jones Index.)
  • Verizon
  • IBM
  • Chevron
  • Walgreens
  • Merck
  • Amgen
  • 3M
  • Coca-Cola
  • Intel

If you notice, there really isn’t a “bad” investment here, and this is sort of the point. If you did buy these 10 companies, you would get dividends ranging from 4.9% ish for Dow, Verizon, and IBM down to about 2.7% for Intel. All better than any income you are going to get from a savings account. And, remember, just because these stocks may “lose” to the Dow, that doesn’t necessarily mean they are going down.

Is Dow of the Dogs a Good Investing Strategy?

I don’t tend to like any of the “blind” strategies; however, the Dogs of the Dow is a great place to start looking for dividend stocks to invest in and treat like bonds, which I am a huge fan of.

Just as an example, look at Dow, Inc. Dow is a chemical company that was spun off from DuPont in 2019. Dow makes stuff that companies cannot live without. The odds of the company suddenly heading for bankruptcy are pretty low. The risk is some enormous lawsuit based on something being more dangerous than we know currently, like asbestos ended up being, or some big environmental thing, which is what keeps me away from using Dow as dividend bond stock. Barring that however, Dow will be here for a very long time unless it gets bought out, in which case you get to cash out. In the meantime, you could be earning almost 5% interest.

Again, if you treat Dow like a bond (price fluctuations are irrelevant until you plan to sell) and just keep collecting your 5% interest, then this is nice investment. Over time, the price should trend up with the overall market, and if you happen to catch a bang up year, you can cash in and take your capital gains with you.

Don’t blindly follow the Dog of the Dow, but if you’re looking to put extra cash to work, there are worse places to start looking for investment options.

About the Author

By Brian Nelson – Brian is a former Certified Financial Planner and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended as financial or investment advice. At the time of publication, Mr. Nelson owned shares in IBM, Verizon, Merck, Amgen, 3M, and Intel, however, that may change at any time without notice.

ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.

Leave a Comment

Your email address will not be published.