Dow Dogs, Led by Chevron and Merck, Beat the Dow Industrials in 2022

The Dogs of the Dow have had a good year.

The Dogs are a popular income-oriented equity investment strategy involving the 10 highest-yielding stocks in the Dow Jones Industrial Average DJIA –0.22% . Many investors buy the 10 Dogs on the final day of the year, and then rebalance the portfolio 12 months later.

The 2022 Dogs have returned an average of 2.2% based on Thursday prices (including dividends)—with each stock weighted equally. That compares with a negative 6.7% total return for the full 30-stock average.

The Dogs have been paced by Chevron CVX +0.66% (ticker: CVX) and Merck MRK +0.12% (MRK), the top two performers in the index this year. Other winners include Amgen (AMGN), International Business Machines IBM –0.12% (IBM), and Coca-Cola (KO). The biggest loser has been Intel (INTC), followed by 3M (MMM) and Walgreen Boots Alliance (WBA). Other Dog stocks in the red are Verizon Communications (VZ) and Dow (DOW).
Good Year for the Dog
The Dow Dogs — the 10 highest-yielding stocks in the Dow Industrials — topped the overall index in 2022. JPMorgan and Cisco System will replace Coca-Cola and Merck for 2023.

*Replacing Coke and Merck

Sources: S&P Dow Jones Indices; Bloomberg

Based on current prices, eight of the 10 Dogs will return for 2023 with JPMorgan Chase (JPM) and Cisco Systems (CSCO) replacing Merck and Coca-Cola.

The 10 likely Dogs for 2023 have an ample average dividend yield of 4.5% led by Verizon (6.7%), Intel (5.7%), Dow (5.5%), and Walgreen and 3M both at 5%. The Dogs’ average dividend yield is more than double the 2.1% yield of the entire index.

The Dogs look inexpensive, with several trading below 10 times projected 2023 earnings, a discount to the S&P 500 at around 17 times.

This year’s relative performance marks an improvement from 2021, when the 10 Dogs returned an average of 16.4%, behind the 22.6% gain for the entire index (including dividends).