Author: David I. Templeton, CFA, Principal & Portfolio Manager
With the turn of the calendar to a new year, it is appropriate to review the performance of the Dogs of the Dow for the last calendar year of 2025. Out of the ten stocks that were the Dow Dogs in 2025, only one generated a negative return and that stock is Procter & Gamble (PG), down -12.25% in 2025. For the overall Dow Dogs portfolio, the 2025 price return equaled 14.96% with a total return of 18.91%. This total return beat both the Dow Jones Industrial Average Return of 14.92% as well as beating the S&P 500 Index return of 17.88%.
As seen in the table below, the 2025 Dow Dogs included only two technology stocks, International Business Machines (IBM) and Cisco Systems (CSCO) and had an average portfolio weight of 21.7% versus the S&P technology average sector weight of 32.7%. However, both IBM and CSCO generated returns in excess of 30%, far outpacing the overall S&P 500 Index return, generating a sector return of 35.8% versus the S&P 500 Index sector return of 24.0%. Although S&P 500 Index's Health Care sector underperformed the overall index return, two of the three health care stocks in the 2025 Dow Dogs, Johnson & Johnson (JNJ) and Amgen (AMGN) generated strong returns last year.
For 2026, there are three changes in the Dow Dogs holdings. As a reminder, the Dogs of the Dow strategy is one where investors select the ten stocks that have the highest dividend yield from the stocks in the Dow Jones Industrial Average Index after the close of business on the last trading day of the year. Once the ten stocks are determined, an investor invests an equal dollar amount in each of the ten stocks and holds that portfolio for the entire next year. The popularity of the strategy is its singular focus on dividend yield. Below is a list of the new holdings and the stocks dropping out of the 2026 Dogs of the Dow.
Additions:
- UnitedHealth Group (UNH): Dividend yield = 2.68%
- Home Depot, Inc. (HD): Dividend yield = 2.67%
- Nike, Inc. (NKE): Dividend yield = 2.57%
Removals:
- McDonald's Corporation (MCD): Dividend yield = 2.43%
- International Business Machines (IBM): Dividend yield = 2.27%
- Cisco Systems (CSCO): Dividend yield = 2.13%
Also highlighted in prior blog posts is the fact simply chasing higher yielding stocks is not always the best strategy as this type of stock may be trading at lower prices for a reason, i.e., weakening underlying business fundamentals. Possibly though, with the Magnificent 7 (MAGS) and A.I. focus of 2025, maybe a rotation into these more value-oriented stocks might be rewarding in the coming year and worth further evaluation.
Disclosure: Firm or family long JNJ, AMGN, CSCO, MRK, HD, VZ
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