Use This Simple Strategy to Beat the Market in 2018

The concept behind the Dogs of the Dow is based on a simple correlation between price and dividend yield of the stock. And it can help you beat the market in 2018.

“You said it was good,” my 8-year-old son said as he walked off.

He had just recorded a few sentences for a casting call. He is no actor, but my wife wants to give him the opportunity and see if someone likes his unique personality.

We do these recordings every now and then and submit them.

I like the fact it opens my son up to getting on camera and reading out loud. I also try to coach him. Even though I myself am not the best on camera or at reading out loud, I can hear when he can change things and perfect them — or so I think.

He recorded one time, and I said: “That was good. Now let’s try again. But this time let’s…”

That’s where he cut me off.

See, we, and I’m talking about people in general, tend to overcomplicate things.

It’s one of the joys of life about having kids — they like to oversimplify things.

He was done. He recorded it, and nailed it the first time in his own personality. Simple.

I wanted to complicate it. Focus on how he said certain words, add more enthusiasm, as if I’m an expert.

I find myself overanalyzing the markets sometimes too, and I know explaining that to others is sometimes overwhelming.

So I’m happy to share with you today a very simple strategy you can use in 2018 to beat the market — the Dogs of the Dow.

A Simple Strategy Using the Dividend Yield

The Dogs of the Dow refers to the 10 highest-yielding stocks in the Dow Jones Industrial Average at the end of the year.

Back in November, I explained how these stocks are poised to outperform in 2018 after an underperformance in 2017. History shows we can expect a nice rebound in dividend-paying stocks, and all you have to do is buy 10 stocks and hold them for a year.

But I didn’t know the stocks yet.

Now that the new year has begun, I have the list. And even though it is the second week of the year, it will still work out as expected.

Here’s everything you need to know.

The Dogs of the Dow

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

As price falls, the dividend yield rises, assuming the dividend is kept the same. As the price of the stock rises, the yield falls, assuming the dividend stays the same.

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

This isn’t always the case, as some dividend stocks are simply going to retain their higher respective dividend yield in the index regardless. But others, such as General Electric Co. (NYSE: GE), saw their dividend yield surge during a sell-off. The company even cut its dividend in half in 2017, and it still made it onto the top-10-yielding stocks in the Dow.

So, in short, the Dogs of the Dow strategy benefits as investors pour back into these dividend stocks in the upcoming year.

Below is the list for 2018:

Company Dividend Yield
Verizon Communications Inc. (NYSE: VZ) 4.42%
IBM Corp. (NYSE: IBM) 3.91%
Pfizer Inc. (NYSE: PFE) 3.75%
Exxon Mobil Corp. (NYSE: XOM) 3.67%
Chevron Corp. (NYSE: CVX) 3.45%
Merck & Co. (NYSE: MRK) 3.39%
The Coca-Cola Co. (NYSE: KO) 3.23%
Cisco Systems Inc. (Nasdaq: CSCO) 3.03%
The Procter & Gamble Co. (NYSE: PG) 3.00%
General Electric Co. (NYSE: GE) 2.70%

 

Solid Buys

Each of these stocks are solid buys to outperform the market, but sticking with the strategy, you would buy all 10 to have an average gain above the broader market.

General Electric is one I would personally own, and I have it in my income-based service, Pure Income, at the moment. The company is on the cusp of a massive restructuring, and 2018 can be a great year as the stock rebounds.

Verizon Communications Inc. (NYSE: VZ) is in the telecommunications space, which is a favorite of mine. I know there is a lot of change with these companies, but with the never-ending demand for more data and faster internet, the companies that provide it will continue to win — and that’s the Verizons of the world.

The Coca-Cola Co. (NYSE: KO) continues to be a dominant beverage company, even as it expanded beyond soda beverages and into healthier options. The stock had a steady 2017, but is set to outperform this year. The Procter & Gamble Co. (NYSE: PG) is our other consumer goods stock. It had a choppy 2017, but still ended higher.

IBM Corp. (NYSE: IBM) and Cisco Systems Inc. (Nasdaq: CSCO) are the tech stocks this year. IBM struggled in 2017, while Cisco really took off in the last half of the year. We can expect both to head higher in 2018.

Pfizer Inc. (NYSE: PFE) and Merck & Co. (NYSE: MRK) are both pharmaceutical stocks. Pfizer climbed steadily in 2017, and that’s set to continue. Merck struggled late in the year, and we are now looking for the rebound.

Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) are both oil-related stocks that are set to soar in 2018. Both finished 2017 strong and are set to continue that rally in 2018.

Following the Dogs of the Dow strategy to beat the market, simply buy an equal dollar amount of each of these 10 stocks — and then repeat with the new Dogs of the Dow for next year.

Regards,

Chad Shoop, CMT

Editor, Automatic Profits Alert