But have the Dow dogs justified themselves? From 1972 to the end of 2023, the Dogs of the Dow have produced a total return of 45,340%. The Dow Jones Industrial Average itself returned just 21,459%. At the same time, the broader S&P 500 gained 20,254%. Not bad?
But even more ferocious than the Dow’s dogs is the strategy of the Dow’s little dogs. From the ten stocks mentioned above, five stocks with the lowest dollar prices are selected. Since 1972, Little Dogs have earned a total return of 81,752%, or an average of 13.77% per year. The Dow Dogs have a long-term average annual return of 12.49%, the Dow 30 has returned 10.89, and the S&P 500 has returned 10.76%. The differences may seem small, but over the decades the difference is colossal. However, past performance does not guarantee future success and cheaper stocks are more volatile, O’Higgins admitted.
O’Higgins fell in with the Dow dogs while working at a bank when he noticed that wealthy investors and their advisors were glued to strong stocks in the Dow Jones Industrial Average. So he took 30 stocks and started testing how to get a better result: you don’t need to own all 30 stocks. And from there, Dow’s little dogs were born.
“Corporate profits are what the accountants say they are and can be manipulated,” O’Higgins said. “Take Enron for example: it imitated a successful company, but it didn’t make any money. But with respect to dividends, you can’t say that a one-dollar dividend is equal to two dollars.”
What threatens the Dow dogs? Dividend cuts, however, are relatively rare. However, Walgreen recently cut its dividend by 48%, from 48 cents to 25 cents per share. The example highlights once again that you shouldn’t put all your eggs in one basket.
2024-01-25 22:17:47
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