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Buying The Dow Stocks With The Highest Dividends Is A Winning Strategy
FYI: Time to check in on some old friends: the Dogs of the Dow.
The “dogs” are just the 10 stocks with the highest dividend yields in the 122-year-old Dow Jones Industrial Average, which these days include Verizon (ticker: VZ), International Business Machines (IBM) and Pfizer (PFE).
Hi @Ted: Thanks for posting the "Dogs of the Dow" strategy. Interestingly, Old_Skeet has a mutual fund that incorporates this strategy within about a third of it's holdings. The fund is FDSAX. I have provided a link below to the fund's site for those seeking more information about this fund.
To view the fund's fact sheet click on the literature tab and then fact sheet.
In addition, readers might wish to read Edward Studzinski's article on income and the power of dividends in this months edition of MFO's monthly newsletter. Just follow the below link and when opened scroll down to the subtitle blurb "Investing 2019."
CAPE, again, has outperformed DOD the last 6/5/4/3/1y periods. (Slightly.) I shoulda considered it when looking for a CAPE standin, instead of QUAL and MMTM and a few others. DOD sure has a higher UI, though, and by some degree.
You turned me on to DSENX years ago and it remains one of my top holdings. FDSAX seems a poor substitute for DOD and it hasn't even kept up with the S&P500 let alone DSENX. Some times more is less. Maybe not even sometimes.
Because of DSENX's good performance I decided to do a study of the fund.
Here is what I found.
After study of it's fact sheet, if I were to own DSENX I would classify it as a hybrid fund since about half of it is invested in fixed income and the other half is held in equity derivatives. So, it seems, to me, there is a good bit of counterparty risk associated with owning this fund with its use of derivatives to gain its equity exposure.
However, by using equity derivatives gives the fund manager an easy and effective way to change it's positioning from time-to-time as they change their read on the equity markets. Currently, Morningstar list it in the large cap value category with small cap value positioning. And, they also have a clever way to sector position the fund which makes it a desirable choice, to me.
However, if I were to buy this fund I'd be holding it in the growth & income area of my portfolio inside my domestic hybrid sleeve. I'd also be limiting it's weighting to no more than 10% of the sleeve because of it's sizeable use of derivatives.
I hold both CAPE and DSENX, using the former for trading when the price is right. Up until the market drop late last year, performance of the two vehicles was similar; however DSENX dropped much more than CAPE during he turmoil. I used M*'s chart function to compare performance, so maybe I missed something important.
Old Skeet provided a good analysis. I too hold DSENX for awhile. The 2018 drawdown is sizable as indicated by Derf. The fund 2018's total return was -4.0% while the 60/40 balanced index lost -2.9%. The international version, DSEUX, performed even worse and yielded -12.9% in 2018. The only saving grace of these tow CAPE-oriented funds is their large bond positions that provide the monthly dividend.
Interesting products from Gundlach but the risk is significant. Perhaps TRP Capital Appreciation would be a better vehicle with respect to both risk and reward.
@Sven, DSENX is not a balanced fund (as thoroughly discussed in past discussions here. msf I believe had some good info on that point) so that comparison you gave ends up being apples to oranges. I suppose it could be called a "hybrid" type fund for whatever that means. For me it's just a large cap fund that has a really good return record and does better than the index, whether that's the LC Value or S&P 500 index. And what is meant by your comment that the 2018 drawdown is sizeable? In 2018 per M* the fund lost -4.3% while the LC value index lost -8.5% (S&P500 was -4.4%). It is a little more volatile if you are basing that on the STD, but does that matter if your holding the fund long term and not trying to get in and out to time the market? Higher STD is a bad thing if you don't hold on to your funds. In any case, there is nothing to say this fund is significantly more risky than your typical large cap fund. Take a look at the upside/downside capture ratio. Again DSENX has more upside than the S&P500 index and less downside. It blows the LCV index out of the water by that measure.
@MikeW, didn't really pay much attention before, but per M*, DSENX lost -15.6% and in comparison the S&P500 lost -13.5% in the 4th qtr. The CAPE ETF also lost about the same as DSENX so apparently it relates to the S&P500 low valuation sectors the CAPE formula was invested in at the time. It is not a low-volatility fund if that's what you are looking for.
I went and graphed Oct-Dec $10k change for CAPE, DSEEX, SP500, low-vol LC ETFs, plus DOD, MMTM, QUAL, SCHD, VIG.... And yeah, everyone has already beat me to the point: DSEEX and CAPE did not do any better, to the contrary, did somewhat worse.
(I too have wanted to use CAPE for Merrill no-cost trading but cannot.)
I was v impressed to see how comparatively well TWEIX, YACKX, and PRBLX did during that significant slump. Yay for active management sometimes.
Thanks David, but I just don't see the significance in how it did in the 4th quarter down-turn if you are holding it as part of a long term portfolio strategy. Maybe I just think differently than others. All fine funds you mentioned, but they have not performed better than DSENX as a long term holding (sadly only 3-5 year data available). Tamer and probably better downside risk, but you lose that gain on the upside.
Right, did not imply, nor mean to imply, that it had any significance whatsoever. I completely concur in your take and have great sums (for us) in DSEEX, and it is all I can do to move large fractions of them to PONAX as part of prudent rebalancing.
But it remains true that despite their lowish UI ratings they did not behave particularly protectively after October began. I don't care and like you don't think that is worth caring about.
Comments
https://www-1012.aig.com/Products/MutualFunds/JU68/JU68_FundDetails_Overview.aspx
To view the fund's fact sheet click on the literature tab and then fact sheet.
In addition, readers might wish to read Edward Studzinski's article on income and the power of dividends in this months edition of MFO's monthly newsletter. Just follow the below link and when opened scroll down to the subtitle blurb "Investing 2019."
https://www.mutualfundobserver.com/2019/02/problems-what-problems/
You turned me on to DSENX years ago and it remains one of my top holdings. FDSAX seems a poor substitute for DOD and it hasn't even kept up with the S&P500 let alone DSENX. Some times more is less. Maybe not even sometimes.
Derf
Here is what I found.
After study of it's fact sheet, if I were to own DSENX I would classify it as a hybrid fund since about half of it is invested in fixed income and the other half is held in equity derivatives. So, it seems, to me, there is a good bit of counterparty risk associated with owning this fund with its use of derivatives to gain its equity exposure.
However, by using equity derivatives gives the fund manager an easy and effective way to change it's positioning from time-to-time as they change their read on the equity markets. Currently, Morningstar list it in the large cap value category with small cap value positioning. And, they also have a clever way to sector position the fund which makes it a desirable choice, to me.
However, if I were to buy this fund I'd be holding it in the growth & income area of my portfolio inside my domestic hybrid sleeve. I'd also be limiting it's weighting to no more than 10% of the sleeve because of it's sizeable use of derivatives.
It is indeed an interesting fund.
Interesting products from Gundlach but the risk is significant. Perhaps TRP Capital Appreciation would be a better vehicle with respect to both risk and reward.
@MikeW, didn't really pay much attention before, but per M*, DSENX lost -15.6% and in comparison the S&P500 lost -13.5% in the 4th qtr. The CAPE ETF also lost about the same as DSENX so apparently it relates to the S&P500 low valuation sectors the CAPE formula was invested in at the time. It is not a low-volatility fund if that's what you are looking for.
(I too have wanted to use CAPE for Merrill no-cost trading but cannot.)
I was v impressed to see how comparatively well TWEIX, YACKX, and PRBLX did during that significant slump. Yay for active management sometimes.
But it remains true that despite their lowish UI ratings they did not behave particularly protectively after October began. I don't care and like you don't think that is worth caring about.