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Outlook: The 2016 Dogs of the Dow


Sep. 1 2020, Updated 12:19 p.m. ET

The 2016 Dogs of the Dow

Let’s look at the 2016 Dogs of the Dow based on the dividend yields measured on December 31, 2015. Coca-Cola (KO), General Electric (GE), and McDonald’s (MCD) have been replaced by Walmart (WMT), Cisco Systems (CSCO), and International Business Machines (IBM). The graph below shows the 2016 Dogs of the Dow. The ones marked in red include the Small Dogs of the Dow (also referred to as Puppies of the Dow). These stocks had the lowest share prices among the ten Dogs at the end of 2015.

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Walmart was one of the worst-performing stocks of the DJIA (Dow Jones Industrial Average) in 2015. A week into 2016, and it’s now the best-performing stock of the index. Walmart ran into many headwinds last year. The retail giant has been struggling to grow its revenues in light of competition from online retail stores such as Amazon (AMZN).

The earnings outlook for Walmart stock was cut in October 2015 with the $1.1 billion investment in its Internet strategy and wage hikes threatening to put downward pressure on profits for the next two years. Walmart may yet offer some value for long-term investors. The stock’s dividend yield was 3.2% on December 31, 2015. Moreover, the company is fundamentally sound. Competitive costs, strong distribution channels, and higher profit margins all make investors see Walmart as a good long-term bet.

Since the outlook for the oil and energy sector has not improved much this year, Chevron , Exxon Mobil , and Caterpillar may continue to bear the brunt of the slump. However, both Chevron and Exxon Mobil give high priority to dividend payments. Chevron plans to let go of more than 7,000 employees and cut its capital budget by 24% in 2016. These cuts could help support the current level of dividend payouts by the company.

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Four of the ten Dogs for 2016 are also dividend aristocrats. Dividend aristocrats are companies listed on the S&P 500 (VOO) that have increased their dividend payments for 25 straight years. Walmart, Proctor & Gamble (PG), Chevron, and Exxon Mobil all form part of the elite group. So these stocks could actually be good long-term value picks for dividend-seeking investors.

Dogs of the Dow could be a good value opportunity for investors on the lookout for high-quality stocks. However, investors must be mindful of the costs of rebalancing associated with the strategy. Investors should also keep in mind that this is a long-term strategy and may not give positive returns every year. January 1 doesn’t have to be the rebalancing date for this strategy. Investors can pick any date as their anniversary date. Always remember that the key to winning in markets is investor discipline, and this strategy helps foster that.


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