Dogs of the Dow anyone?

[princeplanet]

Anyone out there follow this strategy? For the uninitiated, it's basically picking the 10 highest yielding stocks at the start of each year in the hope that the gains and yields will beat out the index most years. History seems to bear this out. So, is this only for the US? Is there an Australian version of this strategy (Dogs of the ASX?).

Also, if I choose to try this with the top US Dow stocks, what are the penalties/fees/taxes incurred from the standpoint of an Australian Investor?

 

[So_Cynical]

I do similar, all contrarian investors do something similar...unloved stocks of the ASX, and why get hung up on a set date, buy cheap unloved stocks be they big small or medium...who cares.

 

[princeplanet]

I do similar, all contrarian investors do something similar...unloved stocks of the ASX, and why get hung up on a set date, buy cheap unloved stocks be they big small or medium...who cares.

I don't get why they're called "dogs"... many of these stocks seem to be the most commonly held and traded, ANZ, NAB, TLS etc. Are we talking about the same stocks?

 

[ROE]

I don't get why they're called "dogs"... many of these stocks seem to be the most commonly held and traded, ANZ, NAB, TLS etc. Are we talking about the same stocks?

They called dog because they lag the index in recent time or hasn't performed, some like TLS hasn't gone any where for a decade etc...(They normally use share price).

I buy whatever provides best bang for the buck (good yield and can be maintained/increase and trades
at a price I'm willing to pay).

Some of these stocks can be dogs or down right risky but if it fits into my pool of probability and trades at price I like I'm in.

 

[systematic]

Like others, I do similar - but I don't use dividend yields, as they seem to have a lower performance than other factors (from a capital growth point of view).

If you wanted to follow it, you should be able to find the dividend yields quite easily for something like the ASX50 or something like that, and you could take your top 10 from there, or top 5 from the ASX 20 - that would probably be even closer (in spirit) to Dogs of the Dow.

 

[princeplanet]

Like others, I do similar - but I don't use dividend yields, as they seem to have a lower performance than other factors (from a capital growth point of view).

Can you share how you do it differently? Is it working for you?

 

[Dona Ferentes]

2021 ASX200 dogs, 1-year return (%)​

Nuix ................. −73.1
Polynovo ......... −62.8
Magellan ......... −61.7
Appen .............. −57.2
Kogan.com ...... −56.4
Resolute Mining .. −52.8
A2 Milk .................. −52.1
AGL Energy .......... −48.6
Regis Resources .. −46.7
NRW Holdings ...... −44.2

 

[Dona Ferentes]

2021 S&P 500 dogs, 1-year return (%)​

Global Payments .... −38.8
Nordstrom ............... −33.6
Activision Blizzard ... −31.5
Viatris ........................ −30.2
Citrix Systems .......... −26.9
IPG Photonics Corp.. −25.2
Wynn Resorts ........... −23.5
Fidelity National Information Services .... −22.3
Discovery Inc. ........... −21.8
ViacomCBS ............... −21.2

 

[divs4ever]

i bought ( and reduced KGN ) in 2020 , and still nicely in front

i bought both RMS and RRL as they slid down those slippery slopes this year ( smaller buys so i wouldn't be bloated if i bought more , cheaper

could be an interesting year in 2022

 

[Gunnerguy]

2021 ASX200 dogs, 1-year return (%)​

Nuix ................. −73.1
Polynovo ......... −62.8
Magellan ......... −61.7
Appen .............. −57.2
Kogan.com ...... −56.4
Resolute Mining .. −52.8
A2 Milk .................. −52.1
AGL Energy .......... −48.6
Regis Resources .. −46.7
NRW Holdings ...... −44.2

I fancy A2 milk, Magellan and Kogan just for fun.

 

[Dona Ferentes]

Dogs of the Dow​

Michael O'Higgins popularised a systematic strategy of investing in underperforming companies named "Dogs of the Dow" in his 1991 book "Beating the Dow." This approach draws on the same investment principles as deep value and contrarian investors. O'Higgins advocated buying the ten worst-performing stocks over the past 12 months from the Dow Jones Industrial Average (DJIA) at the beginning of the year but restricting the stocks selected to those still paying dividends.

Restricting the investment universe to a large capitalisation index like the DJIA or ASX 100 improves the chance that the unloved company may have the financial strength or understanding of capital providers (such as existing shareholders and banks) that can provide additional capital to allow the company to recover over time.

The thought process behind requiring a company to pay a dividend is that its business model is unlikely to be permanently broken if it still pays a distribution. A company's directors are unlikely to authorise a dividend if insolvency is imminent.

The strategy then holds these ten stocks over the calendar year and sells them at the end of December. The process then restarts, buying the ten worst performers from the year that has just finished.

Retail investors have an advantage.​

One of the reasons this strategy persists is that institutional fund managers often report the contents of their portfolios to asset consultants as part of their annual reviews. This process incentivises fund managers to sell the "dogs" in their portfolio towards the end of the year as part of "window dressing" their portfolio before being evaluated.

For example, in early 2024, fund managers with ResMed or AMP in their portfolios would have faced stern questioning from asset consultants about why they owned these companies with bleak outlooks for the coming year.

ResMed was facing a new form of competition with GLP-1 and weight loss drugs, with Novo Nordisk Ozempic and Eli Lily's new Mounjaro drug shortly to hit the market. These drugs promised to create a thinner population that required fewer sleep apnea machines. Similarly, AMP was facing more challenging times with costs continuing to rise across the business and how they would execute the launch of their digital bank. However, in 2024, it became clear that consumers were still going to require RedMed's (+45%) sleep apnoea machines, and AMP (+75%) could execute selling parts of the business, rewarding shareholders that were brave enough to add them to their portfolios in January 2024.

Here, retail investors can have an advantage over institutional investors. Their lack of scrutiny from asset consultants allows them the flexibility to pick up companies whose share prices have been under pressure late in the year that could see a rebound when the selling pressure stops in December. Furthermore, retail investors can afford to take a longer-term view of the investment merits of a particular company that may have hit a speed bump.

The Dogs​

The list of the Dogs of the ASX from 2024 is quite similar to the Dogs from 2023 in that it contains several generally considered high quality and would feature prominently in the portfolios of many growth-style fund managers such as Ramsay Healthcare, Fortescue and NIB. Additionally, some companies have previously been featured on the Dogs of the ASX 100, such as Iluka Resources and IGO Limited.

The three key themes common to the companies whose share prices struggled in 2024 are:

1. Falling Commodity Prices: Mineral Resources, Pilbara Minerals, IGO Limited, Fortescue, Iluka Resources and Paladin Energy.
2. Lower margins across offerings: Viva Energy, Ramsay and NIB
3. Tighter Regulation: Ramsay Healthcare and IDP Education4

Our picks for 2025​

After analysing the Dogs of the ASX 100 each year since 2010, at least three companies from the bottom ten will stage dramatic turnarounds in 2025. However, sitting here in January, picking the candidates for share price rebounds is always very challenging due to recency bias from the previous 12 months of bad news about these stocks.

In selecting a share price recovery candidate for the next year, we generally look at companies whose current woes are company-specific rather than caused by factors outside the control of their management team, such as commodity prices or government policies.

Atlas sees that Mineral Resources will have an annus mirabilis in 2025 after an annus horribilis in 2024, which saw the company's share price battered by falling lithium prices and poor choices by founder Chris Ellison, which led to governance questions. Whilst Mineral Resources CEO is in the naughty corner, he's done some good things for shareholders over the past year, selling the haulage road to Onslow for $1.3 billion to Morgan Stanley and selling onshore gas assets to Hancock Prospecting for $1.1 billion. These actions have lightened Mineral Resources' debt load, and we have seen lithium prices recover 10% from their lows.

Conversely, seeing Ramsay Healthcare stage a remarkable recovery in 2025 is harder. The hospital operator is facing rising labour costs from their nursing staff, a heavy debt load, and tough negotiations with private health insurers, some of which, such as Medibank Private, have been investing in in-home patient care. Recovering from procedures at home is popular with the patients and very popular with shareholders, but deprives Ramsay of between $2,00 and $6,000 charged per day to recover in private hospitals. It's not a great situation for a company trading on 30 times earnings with slender profit margins.

Dogs of the ASX in 2024

Searching through the market's trash for some treasure in 2025

www.livewiremarkets.com

 

[eskys]

EDV can be included in that list. At a 12 month low yesterday, now 4.18

 

[qldfrog]

Not that silly a concept, i give it a go with 10 small packets, exc ramsay, inc edv.
Rendez vous next end december

 

[eskys]

Now, that makes 2 of us, EDV

Not that silly a concept, i give it a go with 10 small packets, exc ramsay, inc edv.
Rendez vous next end december