Can the Dogs of the Dow Really Beat the Magnificent 7 in 2026?

Even suggesting that the Dogs of the Dow could outperform the Magnificent 7 in 2026 seems ludicrous. The Dogs consist of stodgy, beaten-down stocks from the Dow Jones Industrial Average, often mature companies that have underperformed recently, leading to high dividend yields. In contrast, the Magnificent 7 represent elite Big Tech firms driving market gains through innovation and growth. 

Yet, one version of the Dogs almost did in 2025 — and another variant actually did so, returning 25% including dividends compared to the Magnificent 7’s 24.8%. While 2026 is still quite young, they are outperforming the tech giants again by a 4-to-1 margin.

Understanding the Dogs of the Dow Strategy

Popularized by Michael O’Higgins in his book, Beating the Dow, the Dogs of the Dow strategy selects the 10 highest dividend-yielding stocks from the 30 components of the DJIA at the end of each year. Investors buy equal amounts of these stocks, hold them for one year, then sell and repeat the process with the new list. This approach focuses on value stocks, as high yields typically result from price declines, providing potential for recovery alongside steady income.

Variants exist to refine the strategy. One is the Small Dogs of the Dow, which takes the five lowest-priced stocks from the top 10 yielders. Another is a four-stock method, which starts with those same five companies, but excludes the highest-yielding one if it is also the cheapest, as research indicates such stocks often underperform the group. 

Last month, I pointed out this four-stock play is smarter because it avoids drags on returns, as seen in 2025 when excluding Verizon boosted performance from 16.7% (excluding dividends) for the five-stock portfolio to 20.7% for the four-stock version. It is the method I prefer.

The 2026 Selections

The Small Dogs of the Dow for 2026, based on December 31, 2025, closing prices and yields, are Verizon (NYSE:VZ) at $40.73 with 6.7% yield, Nike (NYSE:NKE) at $63.71 with 2.4% yield, Coca-Cola (NYSE:KO) at $69.91 with 2.9% yield, Merck (NYSE:MRK) at $105.26 with 3% yield, and Procter & Gamble (NYSE:PG) at $143.31 with 2.9% yield.

For the four-stock portfolio, Verizon is dropped because it is both the highest yielding and cheapest stock of the five. This aligns with the methodology to eliminate potential underperformers, leaving Nike, Coca-Cola, Merck, and Procter & Gamble.

How They’re Performing So Far in 2026

Year-to-date through January 9, 2026, the four remaining stocks show the following returns, not including dividends: 

This gives the four-stock portfolio an average return of 2.09%. Including Verizon’s -0.66% return, the 5-stock portfolio averages 1.53%. In contrast, the Magnificent 7 average just 0.51% year-to-date, with individual performances ranging from Amazon‘s (NASDAQ:AMZN) 7.17% to Apple‘s (NASDAQ:AAPL) 4.59% loss. While it is still early days, with only about a week or so of trading, the portfolio is off to a good start.

Key Takeaways

Mechanical investing strategies like the Dogs of the Dow often fail because investors tend to want to be more active with their portfolios, tweaking holdings based on short-term news or emotions. Success with any strategy requires letting it run as it is supposed to, sticking to the annual rebalancing without interference. Whether following the four- or five-stock model, it should also be remembered these are dividend-paying stocks, so total returns will be magnified by payouts over time. 

Past performance is no guarantee of future results, of course, particularly for returns over just a week, but the Dogs of the Dow has a long history of often beating the market in many years. That may make it a strategy passive income investors looking to juice returns a little beyond simple index investing want to pursue, regardless of whether it ultimately tops the Magnificent 7.