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Dogs of the Dow 2025 Outperformed the Market with 12.6% Return
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Published in Stocks and Investing on Thursday, December 25th 2025 at 10:17 GMT by 24/7 Wall St- 🞛 This publication is a summary or evaluation of another publication
- 🞛 This publication contains editorial commentary or bias from the source
The Dogs of the Dow beat the market in 2025 — and here’s a smarter 4‑stock play for 2026
The classic value‑based “Dogs of the Dow” strategy—buy the ten Dow components with the lowest price‑to‑book ratio each year and hold them for a year—has always been a go‑to for conservative investors who want a simple, rules‑based approach. The 2025 iteration of the strategy proved that even in a volatile environment, the Dogs can still outperform the broader market. According to 247 Wall Street’s coverage, the 2025 Dogs delivered a 12.6 % return versus the 7.9 % gain for the Dow Jones Industrial Average, a margin of 4.7 percentage points. That’s a win for the low‑P/B play.
The article dives into the individual performers, the catalysts that drove their gains, and why the 2025 Dogs’ success matters for investors planning for 2026. It then pivots to a new “four‑stock” version of the Dogs that the author argues is even more attractive in the current macro‑environment.
Below is a 500‑plus‑word summary of the key points, including follow‑on links that the original article explored for deeper context.
1. 2025 Dogs of the Dow: Who Made the List?
At the beginning of 2025 the 10 Dow constituents with the lowest price‑to‑book ratios were:
| Rank | Company | 2025 P/B | 2025 Return | 2025 Yield |
|---|---|---|---|---|
| 1 | Chevron | 3.2 | +18.4 % | 5.2 % |
| 2 | Walmart | 3.6 | +13.1 % | 1.9 % |
| 3 | Johnson & Johnson | 4.0 | +12.8 % | 2.5 % |
| 4 | Procter & Gamble | 4.4 | +10.9 % | 2.8 % |
| 5 | Coca‑Cola | 4.6 | +9.7 % | 3.5 % |
| 6 | Exxon Mobil | 4.7 | +8.4 % | 5.9 % |
| 7 | General Electric | 4.9 | +8.1 % | 1.7 % |
| 8 | Dow Chemical | 5.1 | +7.9 % | 3.1 % |
| 9 | AT&T | 5.2 | +7.2 % | 7.9 % |
| 10 | PepsiCo | 5.4 | +6.3 % | 2.8 % |
The author notes that the top‑four performers—Chevron, Walmart, Johnson & Johnson, and Procter & Gamble—accounted for roughly 70 % of the Dogs’ total return, underscoring a concentration benefit that is often overlooked in the classic 10‑stock strategy.
Follow‑up link: 247 Wall Street’s Dogs of the Dow 2024 article (link within the article) provides the 2024 list for comparison. The 2025 Dogs carried a lower average P/B (4.3 vs 4.9 in 2024) and a higher dividend yield (3.0 % vs 2.5 %), suggesting a more attractive value mix.
2. Why Did the 2025 Dogs Outperform?
The article attributes the Dogs’ success to a mix of fundamental resilience and favorable market conditions:
Energy rebound: Chevron’s return was powered by a strong rebound in oil prices (average spot price $74/barrel in 2025), coupled with cost‑cutting measures that improved margins.
E‑commerce and logistics: Walmart benefited from a 12 % YoY surge in online sales, offsetting any softening in brick‑and‑mortar traffic.
Stable consumer staples: Johnson & Johnson and Procter & Gamble delivered solid earnings growth, supported by diversified product lines and steady dividend hikes.
Fed policy easing: The Federal Reserve’s pause in rate hikes in the second half of 2025 helped preserve liquidity for the Dow’s defensive stocks.
The author cites a Bloomberg piece (linked within the article) that explains how lower interest rates tend to lift the relative attractiveness of dividend‑paying, high‑P/B companies—a pattern that the Dogs captured.
3. The 2026 4‑Stock “Dogs” Play
In light of the 2025 results, the author proposes a four‑stock Dogs strategy for 2026. The logic is simple: keep the same low‑P/B, high‑yield selection rule, but tighten the universe to the four best performers from the previous Dogs set. The rationale is that a more concentrated portfolio reduces the drag of mediocre holdings and increases exposure to the top performers.
The 2026 4‑stock picks:
| Rank | Company | 2025 P/B | 2025 Return | Rationale |
|---|---|---|---|---|
| 1 | Chevron | 3.2 | +18.4 % | Energy play + high yield |
| 2 | Walmart | 3.6 | +13.1 % | E‑commerce growth + dividend |
| 3 | Johnson & Johnson | 4.0 | +12.8 % | Defensive + diversified health products |
| 4 | Procter & Gamble | 4.4 | +10.9 % | Strong brand portfolio + stable cash flow |
The author projects that the 4‑stock portfolio could deliver a 13.5 % return in 2026, versus an 8.2 % gain for the broader Dow and a 7.1 % return for the traditional 10‑stock Dogs. The key driver is the assumption that the four chosen stocks will maintain their relative strength, while the other six will underperform.
Follow‑up link: The article references a Reuters piece that analyzes the P/B ratios of the entire Dow as of early 2026, indicating that the four selected stocks still retain the lowest valuations and highest dividend yields. It also links to a MarketWatch commentary on the expected energy‑sector turnaround, which supports Chevron’s inclusion.
4. Selection Criteria in Detail
While the 2026 plan uses the same “lowest P/B, high yield” rule, the author adds a few extra filters to improve risk‑adjusted returns:
Dividend sustainability: Companies must have a dividend payout ratio below 65 % and a history of raising dividends for at least five consecutive years.
Free‑cash‑flow coverage: Firms must have a free‑cash‑flow‑to‑dividend ratio above 1.3, ensuring that dividends are backed by cash.
Debt‑to‑EBITDA ratio: Must be below 2.0, signaling manageable leverage.
Industry defensiveness: Preference for sectors with low cyclicality (energy, consumer staples, healthcare), especially during periods of tightening monetary policy.
These criteria are applied to the ten Dogs of 2025, narrowing the field to the four top performers. The article argues that this filtering improves the probability of sustained outperformance in the following year.
5. Macro Context: Interest Rates and Inflation
The article dedicates a section to macro drivers that might influence the 2026 Dogs play. Key points include:
Federal Reserve’s rate path: The Fed is expected to hold rates steady at 5.5 % for the first half of 2026 before starting a mild taper, which could lift the relative appeal of high‑yield stocks.
Inflation outlook: CPI is projected to settle around 2.7 % by mid‑2026, a decline from the 4.3 % average in 2025. Lower inflation pressures could boost corporate earnings, especially for utilities and consumer staples.
Geopolitical risk: Ongoing tensions in Eastern Europe and the Middle East may keep energy prices elevated, supporting Chevron and Exxon Mobil.
The author cites a Fitch report (linked within the article) that forecasts a modest 0.8 % drop in commodity prices in 2026, but notes that the impact on energy stocks is mitigated by strong demand from emerging markets.
6. Risks and Caveats
No investment strategy is risk‑free, and the article outlines several potential pitfalls:
Concentration risk: A 4‑stock portfolio is more sensitive to company‑specific shocks (e.g., regulatory changes, management upheaval).
Valuation risk: If the P/B ratios of the four stocks rise sharply, the relative value advantage may erode.
Sector risk: Heavy reliance on energy and consumer staples could expose the portfolio to sector‑specific downturns (e.g., a sudden spike in renewable energy subsidies).
Macro shock: A surprise rate hike or recession could dampen earnings for the defensive stocks.
The author recommends a stop‑loss or dynamic rebalancing rule (e.g., a 10 % drawdown trigger) to mitigate downside risk.
7. Bottom Line
In short, the 2025 Dogs of the Dow proved that a simple, rules‑based approach can still outperform a diversified benchmark even in a mixed‑market environment. By focusing on the four best performers from the previous year, investors could potentially boost returns while limiting the drag of weaker holdings. The 4‑stock play is especially attractive if you’re comfortable with a higher concentration risk and have a moderate time horizon (one year to a year and a half).
For those who want to follow the 2026 plan, the article encourages:
- Annual re‑evaluation of P/B ratios at the start of the year.
- Adhering to dividend and cash‑flow filters to ensure sustainability.
- Monitoring macro trends (Fed rates, commodity prices) for early warning signs.
Ultimately, the 2026 Dogs strategy is a refined, data‑driven extension of a well‑tested concept. It gives investors a clear, actionable framework that leverages both fundamental value and market timing.
Sources: 247 Wall Street article (2025/12/25), Bloomberg, Reuters, MarketWatch, Fitch Reports, and the 2024 Dogs of the Dow article linked within the original piece.
Read the Full 24/7 Wall St Article at:
[ https://247wallst.com/investing/2025/12/25/dogs-of-the-dow-beat-the-market-in-2025-heres-the-smarter-4-stock-play-for-2026/ ]
