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This year will be remembered by most investors as marking the start of a bear market, but it was also a big moment for the stocks some refer to as dogs. The Dogs of the Dow strategy proved to be a winner in 2022, as investors turned away from growth stocks and looked instead for value companies and dividends. Given the challenges facing the global economy in 2023, their run might not be over yet. The old-school strategy is simple — take the 30 stocks in the Dow Jones Industrial Average and buy the 10 with the highest dividend yield, or dividend paid compared with share price. In theory, this should help investors find well-established companies that offer healthy yield and may be due for a rebound. Investors can also use the Dogs criteria as a starting point and then select the names on the list they are most confident in for next year. The 2022 list showed a big dispersion in performance. On average, however, the Dogs had total return in 2022 of roughly 1.5%. That means that if an investor put equal money in all 10, the portfolio would have easily outpaced any of the major indexes. Heading into 2023, growth stocks and the tech-centric Nasdaq have been sliding, suggesting that the outperformance of value stocks may not be over. “The trades that worked in 2022 could continue to work in 2023. Nothing’s changing as we turn the page in the calendar,” said Kevin Simpson, chief investment officer at Capital Wealth Planning. One popular outlook for 2023 is for a rough first half followed by a rebound in the second half. That could mean that growth stocks catch up to value later in the year, but Simpson is skeptical that scenario plays out. “When you have everyone almost unanimously providing that playbook, then maybe there’s reason to think that the value trade could extend out even longer,” Simpson said, noting that elevated interest rates could put a lid on any growth stock rebound. There are few changes to next year’s Dogs list, which is headlined by Verizon . The telecom provider saw its stock price fall 24% this year, raising its dividend yield above 6%. Two new additions to the list, based on dividend yields as of Dec. 28, are JPMorgan and Cisco . Those two replace Merck and Coca-Cola , which fall out after outperforming the market this year. Two other names that outperformed in 2022 but are poised to remain on the Dogs list for another year are Chevron and Amgen , both of which are held by Capital Wealth Planning. “We like energy, and we like health care. Both of those trades worked really well in 2022, and we think they’ll continue to do well in 2023,” Simpson said.
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