By Al Root

The Dogs of the Dow investing strategy has been looking like, well, a dog. But 2025 just might unleash a win.

The strategy calls for buying the 10 highest-yielding stocks in the Dow Jones Industrial Average at the start of a year, holding them, and reshuffling the portfolio a year later. A high dividend yield can be a sign that something is wrong at the company. Buying the Dogs is a bet that things will get better.

That hasn't worked out lately. The Dogs identified at the end of 2023 underperformed the Dow by about 14 percentage points this year through Dec. 24. They trailed the S&P 500 index by about 25 percentage points. The problem: The list was full of energy, consumer staples, and healthcare names, while investors focused on artificial intelligence and the Magnificent Seven.

In fact, the Dogs of the Dow underperformed the Dow and S&P 500 in five of the past six years. But there is reason for optimism. The likely 2025 Dogs, to be firmed up on Dec. 31, trade for an average of about 16 times the earnings expected for the coming year, compared with about 22 times for the S&P 500. That is similar to the gap headed into 2022, when the Dogs outperformed the S&P 500.

The incoming dogs, listed in the table nearby, have climbed about 5% this year, versus a 14% gain for the Dow and 24% for the S&P 500. With any luck, they will soon have their day.

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

Last Week

Markets

Christmas week dawned with Congress averting a government shutdown. Reuters reported that China plans to issue a record $411 billion in bonds to stimulate consumption. Treasury yields rose. Shares advanced quietly, then fell, as Treasury yields rose and Big Tech sold off on Friday. On the holiday-shortened week, the Dow industrials edged up 0.4%, snapping a three-week losing streak, the S&P 500 0.7%, and the Nasdaq Composite 0.8%.

Companies

The FDA approved Eli Lilly's Zepbound for sleep apnea. Palantir Technologies and Anduril Industries are talking with a dozen tech companies about forming a consortium to compete with U.S. defense contractors. Netflix streamed two Christmas Day NFL games for the first time, hitting a high of 27 million viewers for a Beyoncé halftime. No major snafus.

Deals

Nissan Motor and Honda Motor agreed to begin merger talks. The deal could include Mitsubishi Motors... News Corp and Australian telecom Telstra Group agreed to sell Australian pay TV service Foxtel to DAZN Group for $2.1 billion. News Corp is the parent of Barron's owner Dow Jones... BNP Paribas said it was buying insurer AXA's investment management arm for $5.3 billion...The Nordstrom family, in partnership with Mexican retailer El Puerto de Liverpool, sealed a $4 billion deal to take the department store chain private.

Milestone

Richard Parsons, who helped rescue companies including Citigroup and Time Warner, died at 76.

Next Week

Monday 12/30

The Institute for Supply Management releases its Chicago Business Barometer for December. Consensus estimate is for a 42.8 reading, 2.6 points more than in November.

The National Association of Realtors releases its Pending Home Sales Index for November. The PHSI, a forward-looking indicator of home sales based on contract signings, is expected to increase 7.9% year over year from last November's depressed levels. The index hit a record low this past summer as elevated mortgage rates and the lock-in effect -- the disincentive for existing homeowners to sell because their mortgage rates are much lower than current rates -- continue to weigh on housing activity.

Wednesday 1/1

Equity and fixed-income markets are closed in observance of New Year's Day. The Nasdaq and New York Stock Exchange have regular trading hours on New Year's Eve.

Friday 1/3

The ISM releases its Manufacturing Purchasing Managers' Index for December. Economists forecast a 48.3 reading, roughly even with November data. The manufacturing sector has been weak, with 24 of the past 25 monthly readings below the expansionary level of 50.

The Numbers

54 M

Forecasted number of holiday travelers on U.S. airlines between Dec. 19 and Jan. 6, a record.

$41 B

How much China spent on semiconductor wafer fabrication hardware this year, 40% of the global total.

$8.7 B

Amount U.S. shoppers lost to fraud through 2024's 3Q, up some 14.5% over the same period last year.

50%

The decline in private-equity asset sales in 2024, the third straight year of below normal cashouts.

Write to Robert Teitelman at bob.teitelman@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

December 27, 2024 17:49 ET (22:49 GMT)

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