Dogs of the Dow Strategy: A Filter for Quality Companies with Kevin Simpson

Dogs of the Dow as an Investment Filter

• 💡 The Dogs of the Dow strategy is presented not as a passive approach, but as a phenomenal place to identify great companies that are currently out of favor.
• 🎯 In 2025, the Dogs of the Dow strategy saw a significant outperformance, with returns over 17%, exceeding the broader Dow's approximately 13% gain.
• 🔑 The core thesis is to use this strategy as a filter for high-quality companies before they become popular again.

Key Sectors and Stocks for Investment

• 🏥 Healthcare stands out as a favored sector, with Amgen, Merck, and Johnson & Johnson showing positive momentum.
• 📈 For investors prioritizing yield, Verizon is highlighted due to its slow growth translating to stock appreciation but offering an attractive 8.5% forward multiple and nearly 7% dividend.
• 🏠 Home Depot, a newcomer to the list, is identified as a potential winner in 2026, with opportunities for normalization and growth beyond just its yield.

The "Fleas" and Selectivity in Investing

• ⚠️ The concept of "fleas" refers to the inherent risks in any passive list, emphasizing the need for selectivity.
• 📊 While the Dogs of the Dow performed exceptionally well in 2025, they had underperformed in 2023 and 2024, underscoring the importance of doing homework.
• 💰 The strategy's success is linked to attractive dividends and identifying out-of-favor companies, aligning with the principle of buying low and selling high.

Macroeconomic Factors Supporting Dividend Stocks

• 📉 The current macroeconomic environment, with stable or potentially declining interest rates, makes dividend-paying stocks attractive.
• 📊 The 10-year yield's movement from 4.8% at the start of 2025 to around 4.1% by year-end, coupled with potential rate cuts, supports this thesis.
• 🚀 The performance of dividend stocks, including the Dogs of the Dow, is expected to remain strong in 2026 due to favorable rate narratives.