• See the 10 year ‘Dogs of the Dividend Aristocrats’ study
• 11 year constituent list infographic of every Dividend Aristocrat from 2005 to 2015
• Historical Performance numbers for the Dogs of the Dividend Aristocrats

The Dogs of the Dow investing strategy has been popular since it was first introduced in 1991.  The strategy is very simple:  buy the 10 highest yielding dividend stocks in the Dow Jones Industrial average, and hold them for 1 year.  Repeat every year.  You can see a 10 year study on the Dogs of the Dow here.  This article examines what happens when you apply the Dogs of the Dow strategy to the Dividend Aristocrats Index.

For readers who are new to Sure Dividend or dividend growth investing, a Dividend Aristocrat is a business that has paid increasing dividends for 25 or more consecutive years, and meets a few other size and liquidity criteria.  A company must have a strong and durable competitive advantage to be a Dividend Aristocrat.  In theory, businesses with strong competitive advantages that reward shareholders with rising dividends should outperform the average business.  This theory has held true over the last decade, as the Dividend Aristocrats Index has outperformed the S&P 500 by 2.88 percentage points a year according to S&P.  You can read more about Dividend Aristocrats in my 54 part Dividend Aristocrats in Focus series.

List of Dividend Aristocrat Constituents over the Last Decade

What stocks are in the Dividend Aristocrats Index?  Many household name stocks like Johnson & Johnson (JNJ), Coca-Cola (KO), and Wal-Mart (WMT).  Over time, some businesses fall out of the Dividend Aristocrats Index and others are added.  The most recent company to fall off the list is packaging manufacturer Bemis (BMS). Bemis fell off because it was removed from the S&P 500 index; it has not stopped raising its dividends.  Other reason for falling off the list are acquisitions, failing to meet liquidity requirements, delisting from the S&P 500, freezing dividend payments, or cutting dividend payments.

The infographic below shows every Dividend Aristocrat from 2005 through 2015.

Dogs of The Dividend Aristocrats By Year

Applying the Dogs of the Dow strategy to the Dividend Aristocrats Index selects only the Top 10 highest yielding Dividend Aristocrats at the beginning of each year.  The 10 highest yielding Dividend Aristocrats each year from 2005 to 2015 are shown in the image below.

The yield for each of the 10 stocks each year using the Dogs of the Dividend Aristocrats strategy is shown in the infographic below.  Notice that the average yield soared in 2008 and 2009 due to the Great Recession and subsequent market decline.  It is interesting to note that 2015 has the lowest average yield of any in the last decade.

The Dogs of the Dividend Aristocrats strategy certainly produces high dividend yields.  The average yield has been 4% or higher every year except for 2015.  Investors would have actually received significantly less than the average yield in 2008 and 2009 as many of the financial companies on the list cut or eliminated their dividend payments.

Historical Performance of The Dogs of The Dividend Aristocrats

The image below shows the performance of the Dogs of the Dividend Aristocrats strategy from 2005 through 2014.  Returns include dividends.  DoDA stands for Dogs of the Dividend Aristocrats.  DA stands for the Dividend Aristocrats Index.  S&P 500 is the S&P 500 index.

Amazingly, the Dogs of the Dividend Aristocrats strategy underperformed the Dividend Aristocrats Index in 9 out of 10 years.  This level of underperformance is significant.  It shows that the highest yielding stocks in the Dividend Aristocrats Index have actually been a drag on performance.   Removing the highest yielding stocks from the Dividend Aristocrats Index would have substantially improved returns over the last decade.

The Dogs of the Dividend Aristocrats strategy performed better against the S&P 500.  It outperformed in 4 out of 10 years.  The worst year of underperformance for the strategy was 2007.  In 2007, the Dogs of the Dividend Aristocrats strategy loaded up on financials as they were beginning to show distress  In fact, 9 out of 10 of the stocks in the Dogs of the Dow strategy in 2007 were financials.  The lack of diversification when a specific industry experiences difficulty hampers returns for the Dogs of the Dow strategy.