Dow Dogs Update: 19.5% Gain

I've been holding the four Dow Dogs since February and yesterday sold the three holdings with the greatest stock price appreciation. I realize this subverts the buy-hold strategy, but I'm gonna take my double digit gain and go to cash til January.

Dupont (DD) and Verizon (VZ) have been beasts, sporting over 4% dividends and outperforming the SPY in style. As I mentioned in February, my experience is that one holding will make up most of the gains, and this year DD has been the driver, with a 46% gain. Kraft (KFT) was sold as well with gains similar to the SPY at plus 10%. Only MRK has underperformed the index, breaking even for the time period, but it's 3 dividend payments have assuaged the pain.

As of today, the four holdings have returned 19.5% including dividends, versus the SPY which has returned 8.8%. Remember these were bought at the February market dip, so the returns are a bit better than YTD.

Since I'm always looking for an easier, cheaper way to get returns, I compared the Vanguard Dividend Appreciation ETF (VIG), and this was up 11%, and although the management fee is higher than SPY, the returns are similar or slightly better. The Dow Dogs strategy is really not going after index gains, however, it's trying to find the racehorse with a low risk portfolio. This year's Secretariat has been Dupont (DD).

With a nice gain for the year and elections coming up, I think it's a wonderful time to sit on some cash.

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As an aside, if the Dow Dogs were chosen today, the picks would be ATT (T), Merck (MRK), Pfizer (PFE) and Kraft (KFT). Remember we throw out the highest dividend producer with the thought that there may be something fundamentally wrong with that company. In Verizon's (VZ) case, however, the higher yield is due to a recent dividend raise and not a stock price drop, but don't try to overthink it-- the strategy is designed to be simple and safe.

Dogs of the Dow Update

In February I funded my IRA and split the total among the 4 Dow Dogs. After six months, they are up cumulatively 7.8% plus 2.1% dividend over that period for a total return of 9.9%. This beats the S&P index handily. The best performing holding has been Dupont (DD) and the worst has been Merck (MRK). Verizon (VZ) and Kraft (KFT) have been near the index performance.

Update: Dogs of the Dow

Eight weeks ago I allocated my IRA into the four Dogs of Dow and so far, so good. February 5th was the swing low and my holdings have cumulatively appreciated 8.6%, although under-performing the SPY which has gained 10.6%. The best Dog gainer has been Dupont (DD) which is up 16%, and the worst of the four is Merck (MRK) with a 3% gain. Verizon (VZ) and Kraft (KFT) have intermediate gains. Only Verizon (VZ) has not gone ex-dividend since the purchase, and the cumulative yield of the Dogs is 4.5% annually.


I am pleased with the good performance of the Dogs so far; while they have not done as well as the SPY index, they should be a safe haven for my stock allocation for the remainder of the year.

Dogs of the Dow

Today I funded my IRA and employed the the Dogs of the Dow. This is something that I had done with regularity in the 1990's with success, but got away from it the last few years for various reasons. The thesis goes like this: The Dow stocks represent a varied cross-section of the stock market and the "Dogs" are those members who are most undervalued using yield for valuation.

Instructions: Take the top five yielding stocks, drop the top yielder since it may have some fundamental problem, then invest one-fourth allocation into each of the next 4 in rank. The ranks will change almost daily and the picks should be held for one year. One variation is to use only those stocks selling below $30 per share, called the "small dogs", with the thought that stocks with higher share price are not as desirable. Since the current four doggish stocks are all near $30, I didn't use this screen.

Therefore, I put one-fourth allocation into each of Verizon (VZ), Dupont (DD), Kraft (KFT) and Merck (MRK), with an average yield of just under 5% which is better than long term Treasurys. In my experience one or two will largely outperform the others, and since it's completely unpredictable a buy-and-hold discipline must be respected.

One unintended bonus: I went long on these four names at 2:00 pm which inadvertently pegged the day's bottom; it's always good when a long term holding gets a 1% gain in the first two hours you hold it. There, now I jinxed the strategy.