Will the Dogs of the Dow Strategy Work in 2022?

The Dogs of the Dow strategy involves investing in the highest dividend yield stocks of the Dow Jones. Will it work in 2022?

Mohit Oberoi, CFA - Author

Dec. 29 2021, Published 4:46 a.m. ET

A dog outside the NYSE
Source: Getty Images

As 2021 is drawing to a close, investors are trying to position their portfolios for next year. The outlook doesn't look rosy, with a low-single-digit upside forecast for the S&P 500 in 2022. One strategy investors are considering is Dogs of the Dow, or investing in the highest-dividend-yield stocks of the Dow Jones.

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Simply put, the strategy intends to beat the 30-share Dow Jones by buying 10 of the highest-dividend shares. Unlike capital gains, which depend on markets, dividends are usually stable.

Will investing in dividend stocks make sense in 2022?

Dividend stocks always attract investors, especially those who rely on investments for regular income. With 2022 looking hazy amid expected slow economic growth, rate hikes, and COVID-19's continued threat, high dividend stocks could bring some portfolios stability.

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Is Dogs of the Dow a profitable strategy?

Over the last few years, growth stocks have outperformed their value counterparts by a wide margin. In contrast, high-dividend stocks (usually value plays in mature industries) have fallen out of favor.

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In 2021, of the 10 Dogs of the Dow, only three—Cisco, Chevron, and Walgreen-Boots Alliance—delivered double-digit returns and outperformed markets. Verizon, which is among the best dividend stocks in terms of yield, continued its poor run and fell more than 10 percent.

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Dogs of the Dow for 2022

In 2022, the Dogs of the Dow are set to be Dow Inc., which tops the list with a 5.08 percent yield, followed by IBM, with a yield of just above 5 percent. Verizon and Chevron are also on the list, with yields of just below 5 percent.

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Next are Walgreens-Boots Alliance, Merck, Amgen, and 3M, with annual dividend yields of between 3 and 4 percent. Coca-Cola and Intel are the final two names on the list. Coca-Cola is also in Berkshire Hathaway’s portfolio, with Warren Buffett having held the stock for some time now.

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Which Dogs of the Dow should you buy for 2022?

One strategy for 2022 could be to buy all ten Dogs of the Dow. You could also concentrate on a few, namely IBM, Merck, and Chevron. IBM’s turnaround strategy makes it a solid bet, and Merck’s molnupiravir has received EUA (emergency use authorization) in the U.S. India has also allowed the drug amid the rise of COVID-19's omicron variant. In Dec. 2021, Goldman Sachs upgraded the stock and said that markets were underestimating its growth portfolio.

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Whereas Chevron underperformed energy peers in 2021, the company’s strong balance sheet and energy prices' continued strength make it a good stock for 2022. As the Fed embarks on its rate hikes, with three predicted in 2022, high-yield stocks might boost your portfolio in 2022.


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