Who Let the Dogs of the Dow Out? A Year-Over-Year Comparison

This week, we cover a strategy that focuses exclusively on purchasing blue-chip companies when they become undervalued relative to each other. Dogs of the Dow is a disciplined approach for individuals seeking value-oriented, large-cap stocks and a steady source of dividend income. Read on to learn how to use the AAII Dogs of the Dow screen and see lists of companies meeting the criteria.

The Dogs of the Dow approach was popularized in the 1992 book “Beating the Dow” by Michael O’Higgins and John Downes. The book provides a basic outline of the approach, along with descriptions of each of the Dow stocks. AAII’s screen is based primarily on the book.

Dogs of the Dow: A Contrarian High-Yield Approach

Dogs of the Dow is a simple and purely mechanical approach that calls for an investor to buy the 10 highest-yielding stocks in the Dow Jones industrial average at the start of every calendar year. An equal dollar amount is allocated to each of those 10 stocks, and the portfolio is held for 12 months. On the first trading day of the next calendar year, the process is repeated, and the portfolio is reconstructed with the new highest yielders.

Table 1 highlights the 10 companies that passed the Dogs of the Dow screen as of December 30, 2022. To conduct a year-end checkup, AAII looked at these 10 companies passing the screen at the end of 2023 and updated the financial information and performance through December 29, 2023.

Table 1. Companies Passing Dogs of the Dow on 12/30/2022: 10 Highest Yielders and Low Priced 5 Screen (Ranked by Stock Price, Low to High)

The theory behind Dogs of the Dow is a high yield implies that a stock is undervalued relative to the other Dow stocks. Investors often seek to purchase supposedly out-of-favor, high-yielding stocks whose relative yields suggest that their valuations are underpriced. This is not always the case, as a stock could have a high yield and trade at high multiples of both earnings and book value.

According to the Dogs of the Dow approach, identifying undervalued Dow stocks is most effectively done by examining the dividend yield — a company’s total dividends expected to be paid over the next 12 months divided by current share price.

If a stock’s price rises faster than its dividend, the yield may be low, indicating that the price may have been bid up too far and may be ready for a decline. Conversely, if the dividend yield is too high, the stock may be poised for an increase in price if the dividend can be sustained. The dividend yield can increase if either the stock price falls or the company raises its dividend payment. Obviously, the latter is always preferable.

While stocks pass the Dogs of the Dow screen because of their high current dividend yield relative to other Dow stocks, a study of the company’s historical dividend yield can be equally revealing. A current dividend yield that is higher than its historical average would be a sign that a stock is potentially undervalued.

Intel Corp. (INTC) is involved in designing and manufacturing products and technologies. The company’s segments include client computing group, data center and artificial intelligence (AI), network and edge, Mobileye, accelerated computing systems and graphics and Intel Foundry Services (IFS). Intel is a world leader in the design and manufacturing of important technologies and was the top performer from the Dogs of the Dow list for 2023, up 90.1%.

Intel reported third-quarter 2023 revenue of $14.2 billion, decreasing 8% year over year. Intel delivered a strong quarter. Intel plans on combining its accelerated computing systems and graphics group with its client computing, data center and AI groups to create a more effective go-to-market capability, reducing costs in the process. During 2023, Intel cut its dividend by 65%, causing some concern among investors. However, the capital allocation strategy allowed the company to return to profitability, and the stock price benefited in 2023.

The worst performer from the Dogs of the Dow list for 2022 was Walgreens Boots Alliance (WBA), down 30.1%. Walgreens is an integrated health care, pharmacy and retailing company. The company’s segments include U.S. retail pharmacy, international and U.S. health care. Walgreens is one of the largest drugstore chains in the U.S.

Walgreens reported an earnings loss for the first quarter of 2024. The company delivered results in line with overall expectations, reflecting a challenging consumer environment. The company’s first-quarter sales increased 10% year over year. However, Walgreens cut its quarterly dividend by almost 50%, from $0.48 per share to $0.25 per share.

The Dogs of the Dow philosophy is a contrarian approach. Like all basic value-oriented techniques, the dividend yield strategy attempts to identify investments that are out of favor. Contrarian techniques such as this are based on the premise that markets tend to overreact to news — both good and bad — and push the price of a security away from its intrinsic value.

The biggest challenge with the Dogs of the Dow strategy is that it limits its universe to a highly restrictive group of stocks — the 30 stocks comprising the Dow. These are large, well-known companies with long histories of profitability. Investors looking at high-yield stocks should always ensure that the company can continue to pay its dividend.

The stocks passing the Dogs of the Dow screen are sorted by price, low to high. Doing so makes it easy to identify those also passing the Dogs of the Dow Low Priced 5 screen, which selects the five lowest-priced components from the 10 Dow stocks with the highest dividend yields. The latter approach is even more concentrated and thus more vulnerable to a major setback in one particular stock.

As mentioned above, the Dogs of the Dow approach requires an investor to buy the 10 highest-yielding stocks in the Dow at the start of every calendar year. As of December 29, 2023, the companies highlighted in Table 2 make up the new Dogs of the Dow list. There are 10 companies currently passing the screen. There are only a few differences between the companies passing the Dogs of the Dow screen at the end of 2022 and the end of 2023.

There are two deletions and two additions to the list of companies that currently pass the Dogs of the Dow screen compared to the end of 2023. Intel no longer passes the screen in 2023 and has been replaced by Johnson & Johnson (JNJ), one of the largest pharmaceutical companies in the world. In addition, Coca-Cola Co. (KO) now passes the screen and has replaced JP Morgan Chase & Co. (JPM).

Evaluating the passing company composition of the Dogs of the Dow when comparing 2022 to 2023 yields a similar result: The average yield remains at 4.5%, and the total indicated annual dividends from the 10 companies rose from $41.07 per share to $43.22 per share.

Table 2. Companies Passing Dogs of the Dow on 12/29/2023: 10 Highest Yielders and Low Priced 5 Screen (Ranked by Stock Price, Low to High)


The stocks meeting the criteria of the approach do not represent a “recommended” or “buy” list. It is important to perform due diligence.

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