The so-called ‘dogs’ of the Dow are falling behind in the 2017 rally

Dow Jones Industrial Average

The top-yielding stocks of the Dow Jones Industrial Average or so-called Dogs of the Dow are not fetching the returns that investors are looking forward to this year, particularly after the strategy crushed the broader market in 2016.

The idea is to pick the 10 highest yielding stocks on the Dow and adjust the portfolio at the end of each year to reflect changes in dividends.

But the 10 blue chips that offered the highest yield at the end of last year are up an average 2.4% so far in 2017, lagging the 6.3% gain logged by their non-canine peers and the Dow’s 5.4% year-to-date advance, according to Bespoke Investment Group.

Three of the Dogs—Exxon Mobil Corp., Chevron Corp. and Verizon Communications Inc. are in fact the worst performing Dow stocks so far.

The Dogs of the Dow, popularized by Michael Higgins in his book “Beating the Dow,” is an investment style popular with investors who like to keep things simple.

Typically, this low-maintenance strategy usually pays off. High yielding stocks have outperformed the Dow with an annual return of 14.3% versus the benchmark’s 11% from 1957 to 2003.

But high-dividend stocks, like bonds, are sensitive to inflation and higher interest rate and the Dogs may find it increasingly challenging to replicate the success of the previous years with the Federal Reserve expected to raise interest rates at its policy meeting on Wednesday.

Even the so-called Small Dogs of the Dow—the five cheapest high dividend stocks—are having a tough time of it despite outpacing the Dogs for now, gaining around 4% year to date.

This year’s Small Dogs, alternatively known as the Puppies of the Dow, are Cisco Systems Inc., Pfizer Inc., Coca-Cola Co., Merck & Co. and Verizon. Since 2000, the Puppies have tended to top the Dogs when it comes to market performance with an annual return of slightly over 10% versus the Dogs’ 8.6%.


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