Dogs of the Dow Can Beat the Stock Market. ‘Fast Dogs’ Can Do the Same. - Barron's

Photograph by Alan Crowhurst/Getty Images

The Dogs of the Dow beat stock market averages during the decade just ended. What’s more, Barron’s found that “small dogs” offer investors superior dividend yields without sacrificing too much return. How do fast dogs—the stocks with the fastest dividend growth—perform? As it turns out, pretty well. That’s a good boy.

We’re a little obsessed with dogs. There is good reason though. The Dogs of the Dow is a time-tested strategy that buys the 10 highest dividend yielding stocks in the Dow Jones Industrial Average each year. It’s a simple, repeatable strategy and it has worked. A strategy like that is the Holy Grail for investors.

The success of the Dow Dogs is also what led Barron’s to dive into other simple, repeatable—and potentially winning—investment strategies.

The Small Dogs are the 10 highest yielding stocks in the Russell 2000 small capitalization index with market values over $1 billion. Small-cap stocks are typically more volatile than larger companies. We showed investors cut some of the risk of owing small stocks while receiving much higher than average dividend yields.

Now for the greyhounds. The Fast Dogs strategy looks at companies growing dividend payouts at the fastest rate. The S&P 500 was our sample set.

Fast Dogs just nosed out the S&P 500 over the past three years. Outperforming in 2017, underperforming in 2018 and, essentially, matching the market in 2019.

A longer historic look would be helpful, but dividend growth data is harder to come by than just dividend yields. Barron’s suspects two fundamental reasons Fast Dogs might work over the long run. First, dividend growth demonstrates to investors the future looks bright. Higher payouts are a powerful signal to investors. What’s more, investors like dividends and more money attracts more investors.

The Fast Dogs for 2020 are: Pioneer Natural Resources (ticker: PXD), TechnipFMC (FTI), Thermo Fisher Scientific (TMO), Newmont (NEM), Cimarex Energy (XEC), NetApp (NTAP), Juniper Networks (JNPR), Cognizant Technology Solutions (CTSH), Lam Research (LRCX) and Progressive (PGR).

That’s a nice mix of stocks across several sectors.

Deciding what stocks to buy can be hard. Learning to construct a portfolio of stocks can be hard too. But looking at different factors, such as dividend growth, can help investors screen in, or screen out, various stocks and strategies.

And finding a unique strategy is entertaining—are rewarding—too.

Write to Al Root at allen.root@dowjones.com

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Dogs of the Dow Can Beat the Stock Market. ‘Fast Dogs’ Can Do the Same. - Barron's
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