Back to top

ETF News And Commentary

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 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.
 
For 2014, the Dogs of the Dow include AT&T (T - Analyst Report), Verizon (VZ - Analyst Report), Merck (MRK - Analyst Report), Intel (INTC - Analyst Report), McDonald’s (MCD - Analyst Report), 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.
 

 
Bottom Line
 
Investors should note that the Dow Dogs 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.
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Please login to Zacks.com or register to post a comment.

If you wish to go to ZacksFunds.com, click OK. If you do not, click Cancel.

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
UNITED THER… UTHR 117.83 +28.51%
TRIQUINT SE… TQNT 20.67 +6.52%
RF MICRO DE… RFMD 12.47 +6.04%
VASCO DATA… VDSI 14.77 +4.68%
BANCO DO BR… BDORY 15.53 +3.95%