Not A Market For The Dogs Of The Dow

Insights | Not A Market For The Dogs Of The Dow

Author: David I. Templeton, CFA, Principal and Portfolio Manager

With the first half of 2023 coming to a close this past Friday, the equity markets rewarded investors with strong performance. Much of the markets return to date has been driven by the so-called 'Big Seven" stocks, Meta Platforms (META), Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA) and Alphabet (GOOGL.) The combined average return of these seven stocks in the first six months of the year is 89.1%, far outpacing the S&P 500 Index return of 16.9%. The Dividend Aristocrats as represented by the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) returned just 5.7% in the first six months. Not a terrible return for half of a year, but far behind the S&P 500 Index return and the Big Seven stocks' return.

Big Seven Stocks return as of June 30, 2023

Periodically during the year I post blog content covering the performance of the Dogs of the Dow. The Dogs of the Dow strategy has the sole focus of investing in the highest dividend yielding stocks in the Dow Jones Industrial Average Index. 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 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 them for the entire next year. In my post covering the first quarter performance of the Dogs of the Dow, collectively, the ten stocks had squeezed out a small positive 'total return' of .5%. In the second quarter the Dow Dogs generated a negative return resulting in the return for the first six months equaling -.8% versus the S&P 500 Index return of 16.9%.

Dogs of the Dow as of June 30, 2023

Clearly, the market's focus on A.I., i.e., artificial intelligence, related stocks has been a headwind for the dividend focused strategies as well as many other investment approaches. From a positive perspective, Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, noted market breadth & contribution improved from May to June, but returns were still concentrated in the top issues in the Index. Through June, forty-four stocks accounted for the June 2023 year to date gain, compared to just eight stocks for the year-to-date gain through May 2023. This broadening of performance contribution would be healthy for continuing the market advance through the second half of the year.

HORAN Capital Advisors, LLC is an SEC registered investment advisor. The information herein has been obtained from sources believed to be reliable but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results. Market conditions can vary widely over time and there is always the potential of losing money when investing in securities. HCA and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.