Market Wrap-up for Jan. 3 - Dogs of the Dow: Which Ones Will Bite?

Market Wrap-up for Jan. 3 – Dogs of the Dow: Which Ones Will Bite?


A popular investing strategy known as the “Dogs of the Dow” involves buying the top 10 highest-yielding Dow 30 components at the beginning of each year. Let’s take a look at this year’s “Dogs” and examine how worthy they are of your investment dollars.

First, a Quick Recap

Historically, buying the Dogs of the Dow has made for mixed results. From 1957 to 2003, for example, the Dogs outperformed the markets by around three percentage points annually. In contrast, the strategy trailed the wider markets considerably from 2001 to 2010.

In 2013, buying the Dogs netted about a 30% return, matching the S&P’s return gains for the same period, but beating the overall Dow 30′s return of around 26%. Minus Hewlett-Packard’s (HPQ) massive 96% run-up in 2013, however, last year’s Dogs would have underperformed the wider markets. With some significant price moves since last year, and three new recent additions to the Dow 30 (along with three corresponding subtractions from the list), this year’s Dogs look a bit different – although the top four spots remain unchanged.

2014 Dogs of the Dow: One-Sentence Takes

1. AT&T Inc. (T) – Yielding a healthy 5.3%, this telecom giant offers by far the best yield of the group, but investors should curb their expectations for any significant price growth.

2. Verizon Communications (VZ) – A stable business and a yield of 4.3% should continue to attract income investors in 2014.

3. Intel Corporation (INTC) – Five years ago, who would’ve thought Intel would get this serious about its dividend policy (currently yielding 3.7%)?

4. Merck & Co. (MRK) – Mega-cap pharma play could be one blockbuster new drug away from breaking out, but its 3.6% yield is pretty nice in the mean time.

5. Pfizer Inc. (PFE) – It’s no coincidence that PFE and its 3.4% yield sit right next to rival Merck on this list.

6. McDonald’s Corp. (MCD) – Without a popular new product to lure customers in, MCD’s 3.3% yield may not be enough to change its “dead money” status from last year.

7. General Electric (GE) – Its yield of 3.3% is in-line with historical norms, and the company boosted its payout by 18% last month.

8. Chevron Corp (CVX) – This new Dog has raised its dividend significantly in recent years, and its price performance has been fantastic, too.

9. Cisco Systems (CSCO) – Another new Dog on the block, Cisco has adopted a high dividend strategy because its growth days are clearly over.

10. Microsoft Corporation (MSFT) – Three tech stocks in the Dogs list this year – my, how times have changed.

Today in the Markets

Following yesterday’s pullback on the first trading day of 2014, the markets got off on a more bullish foot this morning. While many Asian markets posted big losses last night, the European markets, in contrast, rallied strongly. Are either of these moves actually influencing the U.S. markets? Probably not.

Without any earnings reports or major news to speak of today, stocks were pushed around mostly on speculation and analyst moves. Embattled banking giant Bank of America Corp (BAC) added to yesterday’s gains, up nearly 2%. In contrast, Apple (AAPL) shares pulled back again, down more than 2% following a downgrade from a major analyst on Thursday. Finally, telecom giant Verizon Communications (VZ) also fell about 1% despite any obvious catalyst. As we mentioned a few days ago, trading was likely to remain choppy as we finished up this holiday-shortened week.

Looking Toward Next Week

With the holidays now behind us, we’re approaching a more “normal” period of market and economic activity. Next week, aluminum producer Alcoa (AA) will unofficially kick off earnings season with its fourth quarter report. We’ll be watching these upcoming reports closely – especially in the case of retail plays, many of whom depend on strong holiday sales to get into the green for the year. We’ll also see the release of several key economic data points, including the full minutes from the Fed’s latest meeting, ADP’s December jobs report, and an update on the official federal unemployment rate.

Thanks for reading! Be sure to check us out on Twitter @dividenddotcom. Have a great weekend.