Categories: Stocks

Dogs of the Dow for 2015: T,VZ,CVX,MCD,PFE

Steve Vrionis :Steve can be reached at steve@investcorrectly.com

Photo from Wikimedia Commons

And now that 2014 has come to a close, here are the Dogs of the Dow for 2015. The Index returned approximately 11 this year, while the Dogs of 2014 returned 12 percent.

What are the Dogs of the Dow?

The Dogs of the Dow is a strategy popularized by Michael O’Higgins. It is a strategy of  selecting the highest dividend paying stocks in the Dow. If one were to follow the Dogs of the Dow to the T they would buy an equal amount of the 10 highest yielding stocks on the Dow at the end year. Each year they would re-balance to the new dogs. As an example, Three dogs from last year Microsoft, Intel and Cisco have now moved off the list based on strong gains which depressed their yields. In their place as new Dogs of the Dow are Caterpillar, Exxon Mobil and Coca-Cola.

Historic Performance

While past performance is no guarantor of future performance, according to the site Dogs of the Dow, the strategy has matched the average total return of the Dow (10.8%) and outperformed the S&P 500 (9.6%) from 1992 to 2011. Back testing further has shown similar results. In the last 14 years, the Dogs of the Dow posted an average return of 8.9 percent, compared to a gain of 7.6 percent for the Dow and a total return of 7.3 percent for the S&P 500.

The Dogs of the Dow can also serve as a good screen for high yielding blue chip stocks.

These come with the caveat that we would not blindly follow any screening strategy without doing due diligence and that when investing for yield, an investor should take special care to insure that the yield is sustainable given the company’s profit level. An investor should pay special attention to the Dividend Payout ratio which is the percentage of earnings paid out in dividends. If this level exceeds 100% then a dividend is not sustainable, while a company that has a lower ratio can continue to comfortably raise their dividends for years possibly even if a down turn occurs.

The yield below is from 12/31/2014 as dictated by the strategy.

Dogs of the Dow

AT&T Inc. (NYSE:T)
Verizon Communications Inc. (NYSE:VZ)
Chevron Corporation (NYSE:CVX)
McDonald’s Corporation (NYSE:MCD)
Pfizer Inc. (NYSE:PFE)
General Electric Company (NYSE:GE)
Merck & Co., Inc. (NYSE:MRK)
Caterpillar Inc. (NYSE:CAT)
Exxon Mobil Corporation (NYSE:XOM)
The Coca-Cola Co (NYSE:KO)

Just missing the Top 10…

Procter & Gamble Co (NYSE:PG)
Boeing Co (NYSE:BA)
International Business Machines Corp. (NYSE:IBM)
Cisco Systems, Inc. (NASDAQ:CSCO)
Johnson & Johnson (NYSE:JNJ)