The Dogs of the Dow is an investing strategy that traces its origins back to the early 1950s. The idea is simple: invest your money each year in the top 10 dividend payers in the Dow Jones industrial average and sit back and wait for the profits to roll in.
The theory is that these companies have been oversold and will snap back to outperform the overall Dow in any given year. Each Jan. 1 you adjust the list to add new high dividend payers and drop off those that have seen their yields drop out of the top 10.
Does it work? Sometimes. There is a website called dogsofthedow.com that is specifically devoted to this investing strategy and you can find all kinds of facts and figures there.
I don't recommend this idea as a way to beat the market. An analysis done by the website suredividend.com found that between the years 2005 and 2013, the Dogs outperformed the overall index only four times out of nine. Over that time, the Dogs underperformed by an average of 2.23 per cent a year.
However, as a strategy to build a high-yielding U.S. stock portfolio, the Dogs are worth a look. Here is a list of this year's Dogs. Prices and yields are as of Jan. 13. Figures are in U.S. dollars.
Verizon Communications (VZ-N). Price: $52.55 (U.S.). Dividend: $2.31 a year. Yield: 4.40 per cent. Comment: Verizon's annual dividend increases usually take effect with the October payment.
Pfizer Inc. (PFE-N). Price: $32.52. Dividend: $1.28 a year. Yield: 3.94 per cent. Comment: Pfizer will raise its dividend by 2 cents a quarter to 32 cents a share in February. The higher rate is calculated in the yield.
Chevron Corp. (CVX-N). Price: $116.38. Dividend: $4.32 a year. Yield: 3.71 per cent. Comment: Chevron raised its quarterly dividend by a penny in November to $1.08.
Boeing Co. (BA-N). Price: $158.83. Dividend: $5.68 a year. Yield: 3.58 per cent. Comment: Boeing recently raised its dividend by 30 per cent to $1.42 a quarter.
ExxonMobil (XOM-N). Price: $86.35. Dividend: $3 a year. Yield: 3.47 per cent. Comment: The company normally increases its dividend with the May payment.
Cisco Systems Inc. (CSCO-Q). Price: $30.07. Dividend: $1.04 a year. Yield: 3.46 per cent. Comment: The company is expected to increase its dividend in the second quarter.
Coca-Cola Co. (KO-N). Price: $40.88. Dividend: $1.40 a year. Yield: 3.42 per cent. Comment: Based on history, we should see a dividend increase with the March payment.
International Business Machines (IBM-N). Price: $167.34. Dividend: $5.60 a year. Yield: 3.35 per cent. Comment: IBM normally increases its dividend effective with the February payment. No announcement has yet been made for 2017.
Caterpillar Inc. (CAT-N). Price: $94.48. Dividend: $3.08 a year. Yield: 3.26 per cent. Comment: Caterpillar did not raise its dividend in 2016. The last increase was in July, 2015, a 10-per-cent hike. Prior to 2016, the company had raised dividends for 23 consecutive years.
Merck & Co. (MRK-N). Price: $62.34. Dividend: $1.88 a year. Yield: 3.02 per cent. Comment: The quarterly dividend was increased by a penny a share to 47 cents in December.
It should be noted that Merck and Procter & Gamble (PG-N) finished 2016 in a virtual dead heat for number 10 on the list. Merck won out by a fraction of a per cent. However, as of Jan. 13 P&G had a higher yield at 3.19 per cent so you could substitute that stock if you prefer.
Using the 10 official 2017 Dogs of the Dow on an equal-weighted basis, you would end up with a blue-chip U.S. stock portfolio yielding 3.56 per cent. You could scale that back to what are called the Small Dogs of the Dow, which includes only the top five yielders. The yield for that group would be 3.82 per cent.
None of these companies is likely to cut their dividend; in fact most will probably raise their payouts during the year.
So the actual 2017 yield at year-end will be higher than the numbers calculated here. Even if the share prices drop, you'll earn good cash flow from this portfolio over the next 12 months.
Ask your financial adviser if this strategy makes sense for you. I'll check back next year at this time to see how the Dogs did.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to buildingwealth.ca.