Dogs of the Dividend Aristocrats

• The Dogs of the Dow is an investment strategy and defined by Michael O’Higgins in his book Beating the Dow.
• The Dogs of the Dow outperformed the Dow in 8 out of the last 13 years
• This article presents the results of the Dogs of the Dow strategy applied to the Dividend Aristocrats. The “Dogs of the Dividend Aristocrats“

The ‘Dogs Of The Dow’ approach

The Dogs of The Dow is an investing strategy that consists of buying the 10 stocks with the highest dividend yield out of the Dow 30 at the beginning of the year. The portfolio should be adjusted at the beginning of each year to include the 10 highest yielding stocks. It’s important to note that this is a long-term investment strategy. In the long run, the average return of the “Dogs” should outperform the Dow-30.

The ‘Dogs Of The Dow’ results

The Dogs of the Dow investment strategy as defined in 1992 is still beating the Dow. Looking back over a longer period of time (2006-2018), the average annual return of the DJIA (DJI) was 9.73% versus 11.16% for the Dogs of the Dow strategy. The small Dogs of the Dow are over time slightly better with an average annual return of 11.81%. The out-performance in percentages is 1.43% for the general Dogs strategy and 2.08% for the small dogs. Both strategies outperform 8 out of 13 years.

The table below list the annual performance per year for the Dow (DJI) and the 10 Dogs of the Dow and the 5 small Dogs of the Dow.

The ‘Dogs Of Dividend Aristocrats’ approach

The Dogs of the Dividend Aristocrats is based on the same investing strategy as the famous “Dogs of The Dow”, only with the difference that the index used is not the Dow 30, but the Dividend Aristocrats index. This index is defined by S&P indices company.

S&P applies the following criteria to construct the Dividend Aristocrats list:

• must be members of the S&P 500
• must have increased dividends every year for at least 25 consecutive years
• Market Cap at least USD 3 billion
• Liquidity at least USD 5 million (average daily value traded)
• Diversification, at least 40 constituents and not sector allocation above 30%

By end of December 2018, the dividend aristocrats list had 53 members, the following 10 stocks with the highest dividend yield make the Dogs of the Dividend Aristocrats for 2019:

The ‘Dogs Of Dividend Aristocrats’ results

The question is: will the Dogs of the dividend aristocrats also outperform the S&P 500?

We back-tested this Dogs Aristocrats strategy for the period 2013-2018 and took the S&P 500 as benchmark. Unfortunately the results are not that positive for this investment strategy.  Only in the 2016, the Dogs of the dividend aristocrats outperformed the S&P 500 index. The table below displays the performance of the Dogs of the dividend aristocrats, the  S&P 500 total return, the Dividend aristocrats total return and finally the out-performance versus the S&P 500.

Looking at the stocks selected in this strategy for this period, the top-10 often includes AT&T (T), Exxon Mobil (XOM) and Chevron (CVX). Since all three shown a below average return during 2013-2018, they could be one of the reasons why this strategy is leading to an under-performance. The chart below displays the stocks T, XOM & CVX and the S&P total return:

The Dogs of dividend aristocrats 2019 edition can be followed on our site.