Will Dogs of the Dow ETF Continue to Shine in 2014?


After years of sluggish performance, the ‘Dogs of the Dow’ are back on track and outperformed the Dow Jones Industrial Average (DJIA) benchmark in 2013 by 400 bps. This is apart from the fact that the Dow generated the biggest annual gains in 18 years with 26.5% return.

The Dogs of the Dow generally represent the 10 highest yielding DJIA blue chip companies that are near the bottom of their business cycle and thus pay higher dividend yields (due to depressed stock prices) (read: 3 Best Dividend ETFs of 2013).

High dividend yields suggest that these stocks are in the oversold territory and will rebound faster than any other stock when the business cycle changes. This would result in higher capital appreciation over the one-year period along with juicy yields.

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For 2014, the Dogs of the Dow include AT&T (T), Verizon (VZ), Merck (MRK), Intel (INTC), McDonald’s (MCD), Pfizer (PFE), Chevron (CVX), Cisco (CSCO), General Electric (GE) and Microsoft (MSFT).

Investors could easily play these Dogs with the only pure play product in the space – ELEMENTS DJ High Yield Select 10 ETN (DOD). The ETN follows the Dow Jones High Yield Select 10 Total Return Index, which uses the Dogs of the Dow strategy by investing in the stocks with the highest dividend yield in DJIA (read: 7 ETFs to Buy in 2014).

The note has amassed $22.9 million in its asset base while charges 75 bps in fees per year. Volume is light as it exchanges less than 19,000 shares in hand on average daily basis. This suggests additional cost for this unpopular and illiquid fund in the form of a wide bid/ask spread.

DOD was up 35% in 2013 but lost about 1% so far this year.

Dogs of the Dow

Dogs of the Dow Bottom Line

Investors should note that the Dogs of the Dow may not necessarily offer a nice portfolio every year as it underperformed in 2012. The performance of these stocks and the ETN depend on bull or bear markets and investors need to take great caution while investing in these companies (see all the top ranked ETFs here).

However, given last year’s performance and some hopes for more strength in large caps this year, this could be an interesting play for 2014, and especially so for investors who like the idea of the ‘Dogs of the Dow’ theory in exchange-traded form.

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SPDR-DJ IND AVG (DIA): ETF Research Reports

ELEMT-DOGS DOW (DOD): ETF Research Reports

INTEL CORP (INTC): Free Stock Analysis Report

MCDONALDS CORP (MCD): Free Stock Analysis Report

MERCK & CO INC (MRK): Free Stock Analysis Report

AT&T INC (T): Free Stock Analysis Report

VERIZON COMM (VZ): Free Stock Analysis Report

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