The "Dogs of the Dow" strategy underperformed in 2012, delivering gains of 9.6% (including dividends). Excluding dividends, the strategy delivered returns of 5.7%, compared with an 11.0% increase for all Dow Jones Industrial Average (DJIA) components. Meanwhile, the S&P 500 (SPX) ended 2012 up 13.4%.
While the basket of stocks did underperform the broader markets, the only Dogs to post declines for the year were DuPont (DD) and Intel (INTC), down 1.8% and 15.0% respectively. The 2012 Dogs strategy missed large gains in DJIA components such as Bank of America (BAC) up 108.8%, Home Depot (HD) up 47.1% and Disney (DIS) up 32.8%, but strategy avoided the DJIA's bigget loser Hewlett-Packard (HPQ) down 44.7%.
The Dogs is one of the simplest investment strategies around. At the start of the year, investors purchase an equal-weighted basket of the 10 highest yielding DJIA stocks. The basket is rebalanced at the beginning of each year with the new set of high yielders. According to some Dog watchers, a successful Dogs strategy requires investors to take advantage of the "January Effect." Historically, the Dogs have outperformed the boarder DJIA by more than 1.5% in the month of January alone.
While some market know-it-alls discount the Dogs strategy as a complete myth, there is no discounting the fact that this strategy is widely followed. In an age where investment products and strategies have become more complex than ever before, is it surprising that many investors are still opting for strategies that are more simple?
For 2013, the yield cutoff was 3.48% (in 2012, the yield cutoff was 3.10%). The 2013 Dogs of the Dow are: AT&T (T) - 5.34%, Verizon (VZ) - 4.76%, Intel (INTC) - 4.36%, Merck (MRK) - 4.20%, Pfizer (PFE) - 3.83%, DuPont (DD) - 3.82%, Hewlett-Packard (HPQ) - 3.72%, General Electric (GE) - 3.62%, McDonald's (MCD) - 3.49% and Johnson & Johnson (JNJ) -3.48%.
Dow Jones Industrials (DJIA : 13384.29), Net Change: -50.92, % Change: -0.38%