Dogs of the Dow return to their winning ways


2018 was the fifth year in a row that we have tracked the Dogs of the Dow, and earlier in the year it appeared as though the strategy would lose to the overall market for the second year in a row.

While the group of stocks in 2018’s group underperformed during the first half of the year, strong performances in a couple of key stocks during the latter part of the year helped the collective group pull ahead of the Dow Jones.

Last year was a volatile one on Wall Street. After hitting record highs the major indexes corrected in the fourth quarter, and the Dow Jones finished the year 5.6% in the read. The stocks in the Dogs of the Dow managed to close out the year with a gain of 2.6% once all the dividend distributions for the year are accounted for. If you remove the dividends, the group lost 1.1%, which shows the power of dividends, but also shows that the stocks on their own would have fared better than the overall market during the year.

Now that 2018 is officially in the record books, lets take a look at each of the ten stocks in last year’s Dogs of the Dow and the impact they had on the overall group.

Note: In each summary the yearly returns for the securities are accounting for four dividend payments even though some of the stocks traded ex-dividend in December with the final distribution not payable until early 2019.

Merck and Pfizer greatly outperformed in 2018

The two drug companies in the list, Merck (MRK) and Pfizer (PFE) were by far the best performing stocks in 2018’s group. MRK was up 41.6% while Pfizer enjoyed a gain of 27.7%. Both stocks were strong throughout the year, but each ran into some selling pressure in December in sympathy to the overall market correction. Each stock was near their 52-week high at the start of December, and each have already found support and have erased some of their losses from the first part of the month. Both companies posted better than expected earnings each quarter last year, and the will both get the chance to impress Wall Street again in the final week of January with their next set of quarterly numbers.

Cisco and Verizon easily outpaced the market

Cisco Systems (CSCO) and Verizon (VZ) were both up strongly for the year with CSCO rising 19.2% and VZ up 14.7%. For Cisco, the stock was very strong through most of the year, but shares took a big hit during the December sell off. CSCO hit a December high of $49.14 on the 4th, but by year’s end the stock had fallen back to $43.33. The stock has already bounced from its December low and with shares trading at a forward P/E of just 12.9 it should continue to erase its recent losses barring another big dip in the overall market. Verizon was weak in the first four months of the year before taking off over the summer and trading steadily higher between May and the start of December. December was tough on the stock but gains from earlier in the year kept the position solidly in the green for the full year. Cisco will next report earnings on February 13 while Verizon will report on January 22.

Coca-Cola and Procter & Gamble end the year in the green

Coca-Cola (KO) and Procter & Gamble (PG) were both able to post modest gains in a down year for the market, with KO rising 8.5% and PG appreciating 5.8% for the year. KO had a tough first four months of the year, but the stock started trending higher in May and enjoyed big gains until a selloff in December with the overall market. The company has posted better than expected earnings and sales each of the last three quarters with earnings rising despite a consumer shift away from sugary soft drinks. PG also struggled in the first part of the year before posting strong gains during the second half of the year. The stock did sell off with the overall market in December, but the selloff was not short-lived, and the stock has already started to make back some of its recent losses. In October the company topped estimates on both the top and bottom line which shot the stock sharply higher. The company will next report earnings on January 23, while KO will report on January 29.

Chevron and Exxon underperform as oil falls

Oil and gas giants Chevron (CVX) and Exxon Mobil (XOM) performed well through most of the year, but as oil prices fell in the fourth quarter each stock took big hits and dropped to 52-week lows during the final week of the year. CVX closed out the year down 6.9% while XOM lost 12.0%. Oil continues to fall as the market worries about oversupply and potentially lower demand as global economies show signs of weakness. Russia hit a post-Soviet record level of output last year, and the U.S. became the world’s biggest crude producer during the year with 11.6 million barrels per day, higher than Russia and Saudi Arabia. With all three countries near record levels out output, oil prices have fallen drastically over the last several months and pulled all the major oil and gas stocks down as well. Both companies will next report earnings February 1.

IBM and GE post big losses for the year

International Business Machines (IBM) and General Electric (GE) are both struggling, and each stock posted big losses for the year. IBM dropped 19.5% while GE shares were more than halved with a loss of 53.7% in 2018. IBM has long wanted to be a player in cloud computing and artificial intelligence but has failed to do so in either category. The company looked to change that in 2018 by spending $34 billion to acquire RedHat. The acquisition makes IBM an instant player in the cloud, but it will be a long road for the investment to pay off. GE had an incredibly dismal year. Earnings are falling sharply, and the company was forced to slash its dividend from $0.12 per share to just a penny. Last quarter the company earned 14 cents per share, which was six cents below the consensus, and down from 29 cents during the same period last year. The miss drove the stock sharply lower, and it remains just above its 52-week low. IBM next reports earnings on January 17 while GE will report on January 29.

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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