The ‘Dogs of the Dow’ strategy worked pretty well in 2025. Here are the stocks to target next year
Kevin Simpson, founder and chief investment officer at Capital Wealth Planning, has his eyes set on five stocks in a basket of equities traditionally used by investors looking for a steady income stream. The ” Dogs of the Dow ” is a strategy that was popularized by investor Michael O’Higgins in the early 1990s and is comprised of the 10 members of the Dow Jones Industrial Average with the highest dividend yields. Because dividend yields tend to have an inverse relationship with stock prices, the group could be trading at relatively cheap prices and therefore be poised for a rebound. Since these stocks are components of the blue-chip Dow, they also tend to be of higher quality. Investors who buy into this strategy also have the benefit of owning assets that provide a steady stream of cash payouts. After underperforming in both 2023 and 2024, the Dogs had a very strong year and gained 17% in 2025, beating the full index’s 13.7% upside in the same period. Simpson said the cohort’s performance this year has been its best since 2019, citing Bespoke Group. Heading in 2026, Simpson is bullish on the three health care stocks within the strategy — Amgen , Merck and Johnson & Johnson . The health care trade is one that really started to “come to life at the end of 2025,” the investor said on CNBC’s ” Worldwide Exchange ” Wednesday morning. Simpson also highlighted Verizon as a good play for any equity income investors whose primary objectives are a high-yield stock. “If you’re a dividend player, Verizon always seems to top that list because it’s a very slow growth company, which translates to a slow appreciation of the stock. But you get an eight and a half percent forward multiple and the stock’s paying almost a 7% dividend,” he added. Since the Dogs strategy is yield-drive, it also rotates every year. Simpson expects that IBM , Cisco and McDonald’s will exit the Dogs this year, to be replaced by 2025’s Dow laggards — Nike , UnitedHealth and Home Depot . The stocks are respectively trading 19%, 34% and 11% lower on the year. Simpson underscored newcomer Home Depot as a top idea within the Dogs for 2026. The investor believes that if interest rates begin to normalize, Home Depot could benefit on a cyclical rebound.
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