As the year 2014 comes to an end, we can't help but review a strategy known as The "Dogs of the Dow" which suggests that investors buy the top ten highest yielding stocks from the Dow Jones Industrial Average at the beginning of the year. The table below highlights the performance of the 2014 "Dogs of the Dow."
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Dog of the Dow 2014 |
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| Ticker | Company | Beginning of 2014 Price | End of 2014 Price | Dividend Yield (1/1/2014) | Dividend Yield (12/31/2014) | YTD % Chg |
| T | AT&T, Inc. | 35.16 | 33.6 | 5.2% | 5.5% | -4.5% |
| VZ | Verizon Communications Inc. | 49.14 | 46.8 | 4.3% | 4.6% | -4.8% |
| MRK | Merck & Co. Inc. | 50.05 | 56.8 | 3.5% | 3.1% | 13.5% |
| INTC | Intel Corporation | 25.96 | 36.3 | 3.5% | 2.5% | 39.8% |
| PFE | Pfizer Inc. | 30.63 | 31.2 | 3.4% | 3.3% | 1.7% |
| MCD | McDonald's Corp. | 97.03 | 93.7 | 3.3% | 3.5% | -3.4% |
| CVX | Chevron Corporation | 124.91 | 112.2 | 3.2% | 3.8% | -10.2% |
| GE | General Electric Company | 28.03 | 25.3 | 3.1% | 3.5% | -9.8% |
| CSCO | Cisco Systems, Inc. | 22.43 | 27.8 | 3.0% | 2.7% | 24.0% |
| MSFT | Microsoft Corporation | 37.41 | 46.5 | 3.0% | 2.5% | 24.2% |
| Dog of the Dow Average | 3.56% | 3.49% | 7.04% | |||
| S&P 500 | 1831.98 | 2058.9 | 12.39% | |||
| Dow Jones Industrial Average | 16441.35 | 17823.07 | 8.40% | |||
The overall performance of the group was subpar when compared to the S&P 500 but nearly matched the performance of the Dow Jones Industrial Average.
Looking at the subgroup, within the top ten highest yielding stocks, you can clearly see that the big name technology companies outperformed the market, with Intel (INTC) gaining as much as +40%. Not only was Intel the best performer in the group but it was also the best performer in the entire index.
Cisco (CSCO) and Microsoft (MSFT) also had exceptional gains for the year, excluding dividend, of +24%. The worst performing was Chevron (CVX) which was hit by the large declines in the price of oil.
Looking broadly at the index, it was the energy sector and large industrial companies such as General Electric (GE) that was hit the hardest. Large telecoms like AT&T (T) and Verizon (VZ) didn't do as well but their large dividends provided enough of a buffer that the total return was in positive territory.
While we don't have a strong view of the strategy, whether it works or not, we are often curious about the actual performance of other strategies. As such, the table below highlight the 10 companies that are consider the Dogs of the Dow for 2015.
| Ticker | Company | Beginning of 2015 Price | Dividend Yield (1/1/2015) |
| T | AT&T, Inc. | 33.59 | 5.5% |
| VZ | Verizon Communications Inc. | 46.78 | 4.6% |
| CVX | Chevron Corporation | 112.18 | 3.8% |
| GE | General Electric Company | 25.27 | 3.5% |
| MCD | McDonald's Corp. | 93.70 | 3.5% |
| PFE | Pfizer Inc. | 31.15 | 3.3% |
| MRK | Merck & Co. Inc. | 56.79 | 3.1% |
| XOM | Exxon Mobil Corporation | 92.45 | 2.9% |
| KO | The Coca-Cola Company | 42.22 | 2.9% |
| CAT | Caterpillar Inc. | 91.53 | 2.8% |
| Dog of the Dow Average | 3.59% |
It shouldn't surprise anyone that many companies which appeared on the 2014 list are also in the 2015 list. Interestingly, this list consists of various sectors. The telecom sector generally has the largest payout of dividends which put AT&T (T) and Verizon (VZ) on the list by default.
The energy sector has two companies, Chevron (CVX) and Exxon (XOM). Sectors that rely heavily on consumer discretionary spending are McDonald's (MCD) and Coca-Cola (KO). If you believe in big pharma, look no further than Pfizer (PFE) and Merck (MRK). Last but not least are the large industrial names which are pegged to world growth, Caterpillar (CAT) and General Electric (GE).
It seems that investors can select a winner based on the sector that they believe to be the top "theme" for 2015 but a study of what has worked in 2014 may provide some edge to how one can maximize the use of this list.
Technology companies obviously did extremely well in 2014 and if you look back the normal dividend yield for the sector, you would see that they're in the range of 2.0% - 2.5% yield. At the beginning of 2014, Intel was yielding 3.5%, Microsoft and Cisco both yield 3.0%.
Clearly all companies were trading much higher than their historical average yield. As for the strategy highlighted in Dividend Don't Lie by Geraldine Weiss, we should really look at the relative yield rather than the absolute yield when assessing the valuation of a company.