Dogs of the Dow hang close to overall market


The Dow Jones continues to trend higher, hitting fresh record highs as investor optimism remains strong.

Over the last few years we have been tracking the Dogs of the Dow strategy, but for the first time since we started following the strategy, our group of stocks this year have struggled to keep pace with the overall market.

The strategy involves buying an equal dollar weight of each of the top-ten yielding stocks in the Dow Jones at the start of the year, and holding the positions through the entire year regardless of individual performance. If the stock’s yields had risen too high because the stock was oversold, then it stands to reason that the underlying securities would rise faster than the overall market as traders bought into the undervalued position.

With less than three months to go, the ten stocks in this year’s group are running pretty close to break-even with the overall Dow Jones, once you include the dividend payments made during the year. Since the stocks have the highest yields in the Dow, the dividends play an important part in the overall performance of the group.

As it stands, the Dow Jones has appreciated 15.5% on the year. Collectively, the ten stock’s in this year’s group have risen 14.9%, so it is pretty even with the market.

The group has benefited from breakout performances by a couple of the stocks in the group, and just three stocks are trading in the red.

Let’s take a closer look at all ten, and see which are propping the group up, and which are pulling down the overall return.

Boeing and Caterpillar are strong outliers

Without question, the strongest stocks in this year’s group have been Boeing (BA) and Caterpillar (CAT). Boeing has appreciated 68.7% during the year, and Caterpillar is up 44.3%. Boeing has made three dividend payments during the year, while Caterpillar has already made its fourth and final payment. Boeing has risen on strength in the overall economy beneftting its aerospace division, and expectations of ongoing strength in its defense sector with President Trump promising to boost federal spending on all branches of the U.S. military. Boeing will report its next set of quarterly numbers on October 25, while Caterpillar is scheduled to release its quarterly results on October 24. Optimism is high in both stocks, and as long as neither releases any negative news in their reports, both stocks should continue to build on recent gains through the remainder of the year.


Charts courtesy of

Cisco and Coca-Cola running break-even with the overall market

Both Cisco Systems (CSCO) and Coca-Cola (KO) are trading pretty even with the overall market. CSCO has appreciated 14.7% on the year, while our KO position is up 14.4%. Cisco has already made four dividend payments during the year, while Coca-Cola still has one more to make before end of year which will give the position a small boost. Coca-Cola is next scheduled to report quarterly results on October 25, and Cisco will not report again until November 15. Both stocks are trading near their 52-week highs, with KO just shy of an all-time high. KO has a high valuation, with a P/E of 49, which could limit its upside through the remainder of the year, while CSCO has a more reasonable P/E of 17.6. Wall Street is upbeat on both stocks, so as long as neither reports disappointing numbers in their upcoming quarterly reports the stocks should hold their recent gains or possible trend higher to overtake the overall Dow, but the upside on a positive report is greater for CSCO given its current valuation.


Charts courtesy of

Pfizer and Merck in striking distance to the overall market

Both pharmaceutical leaders Pfizer (PFE) and Merck (MRK) are trailing the overall market, but both remain up nicely on the year. PFE is trading just shy of its 52-week high and is up 13.5%, while MRK is currently in a weak downward trend, but remains up 9.6% since the start of the year. MRK will get a chance to erase some of its recent losses when it reports third-quarter results on October 27, and PFE will announce its quarterly results on October 31. There is a lot of uncertainty surrounding the healthcare sector at this time, with President Trump doing everything in his power to blow up Obamacare. Trump’s first plan would be to eliminate subsidies, which could wind up boosting premiums and lowering the number of people obtaining insurance coverage. The outcome of what will eventually happen to Obamacare remains unclear, but it is obvious that the market, at least for now, believes that the big players in the sector will emerge as the winners. Both PFE and MRK should keep pace with the overall market over the next few months, and strong quarterly reports could drive the stocks significantly higher, and allow them to rise enough through the remainder months of the year to close out 2017 higher than the overall Dow Jones. Both stocks have made three dividend payments during the year.


Charts courtesy of

Chevron is in positive territory, while Verizon is in the red

Both Chevron (CVX) and Verizon (VZ) are badly trailing the overall market, with Verizon actually trading in the red on the year. CVX has made three dividend payments so far this year, which helped the position appreciate 4.7%, without the dividends the stock would be up just 1.9%, which shows just how important dividends are to the overall strategy. VZ has already made all four of its payments this year, and even with the distributions the position is down 5.4% on the year. Oil prices have firmed, which has helped CVX, and the stock will get a chance to move higher when the company reports its third-quarter numbers on October 27. VZ missed its earnings estimates in January and April, before reporting in-line results in July. The company will next report on October 19, and a strong report will help push the stock closer to break-even on the year, but another miss would result in the stock resuming its downward trend.


Charts courtesy of

Exxon Mobil and IBM both in negative territory

Oil giant Exxon Mobil (XOM) and International Business Machines (IBM) have both traded lower though the year. XOM is currently in a weak upward trend, but the position remains down 5.9% on the year. Oil prices have firmed, which has helped XOM move slightly higher, and the stock should continue to build on recent gains as long as the company is able to post solid quarterly numbers on October 27. IBM has struggled for years as the company has put more emphasis on its cloud and artificial intelligence business, but the gains it has made in these areas have not been strong enough to balance out declining revenues in its enterprise businesses. IBM has reported revenue declines for 21 straight quarters, and that trend is expected to continue when it next reports earnings on October 17. XOM has upside potential if oil prices remain strong or move higher, but IBM will need to show higher sales before Wall Street starts to come back into the stock. Both stocks have made three dividend payments on the year.


Charts courtesy of

Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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