The surprising investment strategy that made money in a horrible 2022


It was a terrible year for the stock market, and many investors found themselves with huge losses compared to where they started the year. Overall, the Dow Jones Industrial Average (DJINDICES: ^DJI) actually managed to hold up much better than broader benchmarks like the S&P500but it still entered the final week of the year down nearly 9% from where it started in 2022.

Those who had hoped to avoid losses by putting some of their money in the bond market were equally disappointed, as many bonds actually lost more ground than the Dow Jones.

Interestingly, however, a strategy many people followed for years not only managed to outperform the struggling Dow Jones Industrials, but also looked set to make a modest gain for the year. Those looking for a simple approach (which is easy to follow, even for new investors) often turn to the method of investing known as Dogs of the Dow, as it involves making a single decision each year, then to sit down to see what is going on.

Below, you can read more about why the Dogs of the Dow were so successful in 2022 and see what could be to come for 2023.

Person with dog looking at laptop.

Image source: Getty Images.

Why investors love the Dogs of the Dow

If you don’t want to spend a lot of time on your investments, the Dogs of the Dow strategy is very attractive. Following the strategy involves investing in just 10 stocks, which is not enough to build a well-diversified stock portfolio, but can complement other individual stocks or various exchange-traded funds and mutual funds.

Here’s how the strategy works: At the start of each year, you look at 30 Dow Jones Industrials stocks and rank them by dividend yield. The 10 best performing Dow dividend stocks become the Dogs of the Dow for the coming year. Buy these shares in equal dollars at the beginning of January, then hold them for the whole year.

You don’t have to do anything along the way except cash the dividend checks. And if you want, you can do the same thing the following year, keeping all the stocks that remain on the list and selling those that are no longer eligible to buy the newcomers.

2022 performance: Dogs of the Dow vs. Dow Jones Industrial Average

Dogs of the Dow (Decline)

Dow Jones Industrial Average



Data source: As of December 23. Based on price change only and omits the positive impact of dividend payouts on total return.

As you can see from the graph above, 2022 has been a great year for the Dogs of the Dow. In fact, if you add in the dividends the 10 stocks have paid over the year, that extends the Dogs’ advantage, and it also pushes their total returns into positive territory by about 2%. It may not be much, but it’s better than the deep losses that most equity investors have suffered this year.

It’s no surprise to see the Dogs doing well, as 2022 has been a great year for value stocks. The Dogs of the Dow tend to do well when value investing is in favor, as they are often the most beaten stocks in the Dow Jones whose returns rise enough to make the Dogs list. Additionally, value investors enjoy the stability and reputation that comes with being a component stock of Dow.

Two actions were largely responsible for the Dogs’ big win. Chevron (NYSE: CVX) jumped more than 50% on the year, supported by still high energy prices which rebounded strongly from the disruptions of the start of the pandemic.

Also, drug maker Merck (NYSE: MRK) saw gains of around 45%, with strong sales of its cancer drug Keytruda and excitement generated by its innovation in the search for a potential cancer vaccine personalized to each patient’s needs.

Start a sequence?

To be clear, the Dogs of the Dow don’t always beat the Dow Jones Industrials. With growth stocks having done so well recently, the Dogs’ 2022 win will be the first in four years for the strategy. Still, for those looking for straightforward investing approaches, the Dogs of the Dow remain attractive — and supporters have high hopes for another year of outperformance in 2023.

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Dan Caplinger has no position in the stocks mentioned. The Motley Fool fills positions and recommends Merck. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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