The Dogs of the Dow end the year with a moan

Pedestrians walking past a Verizon store in San Francisco. Verizon is one of the top-grossing stocks on the Dow Jones Industrial Average.

David Paul Morris / Bloomberg

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Dogs are in the kennel again this year.

The Dogs of the Dow, the 10 most productive stocks in

Dow Jones industrial average,

returned 9% this year (including dividends) based on last Friday’s prices, almost 10 percentage points lower than the index’s 18.3% total return and far from the

S&P 500

‘s 26.7% return.

While 2021 is not yet over, the Dogs are on track to follow the Dow Industrials for the fifth year in a row.

Dogs are an income and contrarian investing strategy that has been popular with individuals for decades. Most practitioners rebalance their portfolios every year at the end of the year.

The idea is that buying the Dogs every year allows investors to look to financially strong, high dividend stocks that are no longer popular on Wall Street. But like many value-driven strategies in recent years, the Dogs have fallen behind.

The coming year could be better for the Dogs. The Probable 10 Dogs portfolio is averaging 4%, compared to just 1.7% for the index and 1.3% for the S&P 500. Dividends on the 10 look pretty secure. Dogs offer an alternative to low yielding bonds with double the yield of 30-year Treasury bonds.

This year’s strategy was affected by the declines of two Dogs,


(AMGN ticker) and

Verizon Communications

(VZ). There were few big winners among the other eight actions:







Alliance of Walgreens boots




Cisco Systems



(MRK) and

Coca Cola

(KO). Chevron is the only one with remarkable returns this year.

Company / TeleprinterRecent priceCumulative return (including dividends)Dividend yield
IBM / IBM$ 116.051.4%5.7%
Verizon Communications / VZ50.86-9.55.0
Dow / DOW57.346.74.9
Chevron / CVX111.9139.54.8
Walgreen Boots Alliance / WBA46.9822.34.1
Amgen / AMGN206.08-7.63.4
3M / MMM179.235.83.3
Merck / MRK80.706.23.2
Coca Cola / KO55.132.93.0
Cisco / CSCO Systems53.2522.52.8
Dow Dogs Medium9.0%4.0%
Dow Jones Industrial Average18.31.7

Source: Bloomberg

Nine of the 10 will likely be back in 2022 based on current returns.

Cisco Systems

is about to give up in favor of


(INTC) because the semiconductor manufacturer now has the 10e– Highest yield in the Dow Industrials at 2.8%.

The yield gap between


and Cisco, however, is less than a tenth of a point after Cisco’s recent stock decline in disappointing earnings, meaning 2022 could have the same 10 stocks as this year. The 12e-the most productive stock is now

Johnson & johnson

(JNJ) at 2.6%.

The valuation is a factor that works in favor of the probable dogs of 2022. Seven of the 10 stocks have price / earnings ratios of 12 or less based on projected earnings in 2022, compared to a multiple of about 21 for the S&P 500. .

One of the downsides of the Dogs is that they have become a relatively static portfolio of old economy stocks. The components of the Dow Jones with the strongest growth prospects return less than 2% – stocks like




(AAPL), and

Home deposit

(HD) – and they’re unlikely to fall into the dog camp unless their stock price drops sharply.

For more than a decade, the Dogs strategy has lagged behind the overall index. An investment of $ 10,000 in the Dogs at the end of 2009 would have reached around $ 40,000, compared to $ 46,000 for the index, Barron calculated.

Chevron leads this year’s winners in the Dogs, which posted a return of around 39%, driven by rebounding earnings and increased investor confidence in the security of its dividend. At around $ 112, the stock is cheap for around 12 times next year’s projected earnings and is earning 4.8%.

Morgan Stanley analyst Devin McDermott is bullish on Chevron, citing its expected 12% free cash flow return for 2022 and potentially more aggressive stock buybacks.

Walgreen, up about 22% this year including dividends, was supported by 15% growth in adjusted earnings per share in its fiscal year ending in August and a low valuation. Even after moving, Walgreen, at a recent price of $ 47, is only trading for nine times next year’s projected earnings and is earning 4.1%

IBM predicts mid single-digit sales growth in coming years following recent fallout from slow growth

Kyndryl Holdings

(KD), manager of technological infrastructures. This prospect could attract investors after years of declining organic revenue. IBM, at around $ 116, has the highest return on the index at 5.7% and is trading for just 11 times projected earnings in 2022.

Merck has been held back by concerns over its dependence on Keytruda, the leading drug that harnesses the immune system to fight lung cancer and other cancers. Company’s Covid-19 vaccine was a failure, and its new Covid treatment could be replaced by a more effective drug from its rival


(PFE). But at around $ 81, Merck is trading inexpensively for around 11 times projected profits in 2022 and is earning 3.2%.

Al Root contributed to the writing of this article.

Write to Andrew Bary at

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