One of the perks of living in South Florida — during winter — is that it allows us to enjoy the beach on the weekends.

My family and I took up a little engineering challenge over the past weekend to see who could construct the best sandcastle.

Not based on looks, but which one could outlast the tide the longest.

As high tide started to come in, we raced down near the shore and each built our best sandcastle —moats and all.

After the tide reached our castles, we watched eagerly to see whose would outlast the waves rolling into them.

Until this point, while the water was hitting the castles, it was hard to tell who would win.

But, as the tide headed back out, there was only one castle that withstood the tide — mine.

Well, 2018 was a year that the stock market tested our investment portfolios.

We all thought we had nice moats and strong strategies to help us withstand a year just like this.

Once the tide left and 2019 was upon us, we can look back and see the strong stocks and strategies that held up, despite the strong tide of 2018.

Some of those strong points were real estate and health care stocks.

Today, though, we are focusing on a small group of 10 stocks that managed to hold up against the stock market’s lashing — the “Dogs of the Dow.”

This time last year, I recommended the 10 Dogs of the Dow stocks that would outperform in 2018.

This strategy of buying the highest-dividend-paying stocks did just that!

Now this group of stocks is set for an even better performance in 2019 — let me explain…

How the Dogs of the Dow Survived the 2018 Tide

Based on how 2017 turned out, the Dogs of the Dow underperformed the overall Dow Jones Industrial Average by a significant margin.

That signaled 2018 would be a great time to own such stocks.

After underperforming years, stocks tend to rebound.

And while the Dogs of the Dow still suffered a negative year in 2018, their 1.5% loss was an outperformance when compared to the 6% drop in the Dow.

The Dogs of the Dow refers to the 10 highest-yielding stocks in the Dow, composed of 30 large-cap stocks, at the end of each year.

Simply buy those stocks and hold them through the entire year — the yield, and price action, help boost your portfolio.

After the Dogs of the Dow failed to post a positive return in 2018, they are now in a great position to post not only positive returns but significantly outperform the Dow index in 2019.

Here Is Why the Dogs Will Rally

The concept behind the Dogs of the Dow is based on a simple correlation between price and yield of the stock.

As the price of a stock falls, its yield rises. And vice versa, as the price rises, its yield falls — in both scenarios, we assume the dividend stays the same.

By targeting the top-yielding stocks of the Dow, the strategy is targeting the dividend of stocks that likely underperformed in the previous year — essentially buying the dip.

I wrote about buying the dip as a wise strategy during this volatile period.

In short, the Dogs of the Dow strategy is beneficial as investors pour back into these dividend stocks in the upcoming year.

Below is the must-own list for 2019:

There’s only one difference in the list from last year — General Electric Co. (NYSE: GE).

General Electric’s stock performed poorly in 2018. GE cut its dividend and was ultimately removed from the Dow index altogether.

It is replaced in the Dogs of the Dow with JPMorgan Chase & Co. (NYSE: JPM).

The other nine stocks are the same high-yielding stocks as last year. And with a beaten-down market, there wasn’t much room for change in this group.

Make sure to look for these stocks to continue to pay out solid dividend yields this year, as well as outperform price-wise against the overall Dow index.

I expect the stock market to stage a comeback from the 2018 decline. But keep in mind that it will be a bumpy ride.

That will allow reliable, dividend-paying stocks to lead the way as investors look to park more capital into these shares, and as they remain hesitant on the stock market.

So, 2019 is a year the Dogs of the Dow not only outperform but turn you a profit. All you have to do is buy the 10 Dogs of the Dow stocks.


Chad Shoop, CMT

Editor, Automatic Profits Alert