The term a "rising tide lifts all boats" was certainly fitting for 2016. The bull market raged on bringing most investment strategies, except for shorts, into the black.
One should expect to see a good deal of profits from the past "Dogs of the Dow" and "Dogs of NLO" strategy. We truly enjoy keeping track and assessing various strategies. What we did several years ago was introduced our readers to a strategy we termed "Dogs of NLO" which looked at the top 10 Dow Jones Industrial Average stocks that are closest to their yearly low. Contrast that to the conventional "Dogs of the Dow" which focus solely on the high yielding stocks.
Our argument is that these companies are typically clustered into several industries that has high payout ratio while leaving other companies out. As value investors, we put heavy focus on relative value versus absolute yield. That being said, we return to 2013 where we introduced the strategy.
To our surprise, the 10 companies in "Dogs of NLO" outperformed the traditional strategy by +16%. The average annual return for our strategy was +15.8% compared to 11.7%. The table below highlight the breakdown between price performance and yield-on-cost.
| Dogs of the Dow 2013 | |||||
| Ticker | Company | Beginning of 2013 Price | End of 2016 Price | 2012 - 2016 % Chg | Current Yield on Cost |
| T | AT&T, Inc. | 33.7 | 42.5 | 26.4% | 5.8% |
| VZ | Verizon | 43.5 | 53.4 | 22.8% | 5.3% |
| INTC | Intel | 20.5 | 36.3 | 76.8% | 5.1% |
| MRK | Merck | 41.2 | 58.9 | 42.9% | 4.6% |
| HPQ | Hewlett-Packard | 14.0 | 14.8 | 5.7% | 3.8% |
| DD | E. I. du Pont | 45.1 | 73.4 | 62.9% | 3.4% |
| PFE | Pfizer Inc. | 25.1 | 32.5 | 29.2% | 5.1% |
| GE | General Electric | 20.7 | 31.6 | 52.7% | 4.6% |
| JNJ | Johnson & Johnson | 70.1 | 115.2 | 64.4% | 4.6% |
| MCD | McDonald's | 88.7 | 121.7 | 37.2% | 4.2% |
| Dog of the Dow Average | 42.09% | 4.65% | |||
| Dogs of the NLO 2013 | |||||
| Ticker | Company | Beginning of 2013 Price | End of 2016 Price | 2012 - 2016 % Chg | Current Yield on Cost |
| MSFT | Microsoft | 27.0 | 62.1 | 130.5% | 5.8% |
| MCD | McDonald's | 88.7 | 121.7 | 37.2% | 4.2% |
| INTC | Intel | 20.5 | 36.3 | 76.8% | 5.1% |
| DD | E. I. du Pont | 45.1 | 73.4 | 62.9% | 3.4% |
| AA | Alcoa | 20.0 | 28.1 | 40.4% | 1.8% |
| IBM | IBM | 192.7 | 166.0 | -13.9% | 2.9% |
| UNH | UnitedHealth | 54.4 | 160.0 | 194.0% | 4.6% |
| KO | Coca-Cola | 36.4 | 41.5 | 13.8% | 3.8% |
| MRK | Merck | 41.2 | 58.9 | 42.9% | 4.6% |
| CAT | Caterpillar | 87.7 | 92.7 | 5.8% | 3.5% |
| Dog of the NLO Average | 59.04% | 3.97% | |||
Although we would welcome +46.70% return of "Dogs of the Dow" strategy, we can't ignore the performance of our strategy which pulled in +63% total return.
One interesting observation was the relatively low dividend yield for "Dogs of NLO" in 2013 (2.90%) compared to the Dow (4%). However, by the end of this year, the yield for our strategy is not too far behind. We won't attempt to dissect the driver for this outperformance as it would be foolish for us to do so.
Now, let's explore the list published last year. The performance of our list was on par with the traditional strategy. There's only one way to find out the viability of this strategy and that's to revisit it several years from now.
Dogs of the Dow and NLO for 2017
We turn our attention to the present-day data. Below, you will find two tables containing "Dogs of the Dow" along with "Dogs of NLO".
| Dog of the Dow 2016 | |||
| Ticker | Company | End of 2016 Price | Dividend Yield (12/31/2016) |
| VZ | Verizon Communications | 53.38 | 4.3% |
| PFE | Pfizer | 32.48 | 3.9% |
| CVX | Chevron Corporation | 117.70 | 3.7% |
| BA | Boeing Company | 155.68 | 3.6% |
| CSCO | Cisco Systems | 30.22 | 3.4% |
| KO | Coca-Cola Company | 41.46 | 3.4% |
| IBM | International Business Machines | 165.99 | 3.4% |
| XOM | Exxon Mobil Corporation | 90.26 | 3.3% |
| CAT | Caterpillar | 92.74 | 3.3% |
| MRK | Merck & Company | 58.87 | 3.2% |
| Dog of the Dow Average | 3.56% | ||
| Dog of NLO 2016 | |||
| Ticker | Company | End of 2016 Price | Dividend Yield (12/31/2016) |
| KO | Coca-Cola Company | 41.46 | 3.4% |
| NKE | Nike | 50.83 | 1.4% |
| PFE | Pfizer | 32.48 | 3.9% |
| GE | General Electric Company | 31.60 | 3.0% |
| CSCO | Cisco Systems | 30.22 | 3.4% |
| INTC | Intel Corporation | 36.27 | 2.9% |
| WMT | Wal-Mart Stores | 69.12 | 2.9% |
| VZ | Verizon Communications | 53.38 | 4.3% |
| PG | Procter & Gamble | 84.08 | 3.2% |
| MRK | Merck & Company | 58.87 | 3.2% |
| Dog of NLO Average | 3.17% | ||
It's a shame that we'll have to wait one year until we can find out how these stocks do. Suffice to say, we will re-examine the data to draw down any lessons that can be gained.