Simpson: The Dogs of the Dow is a great pool to filter for quality companies

Frank Holland (Anchor) 00:00.000

All right. So, Kevin, you know, I asked for you specifically. You're a dividend-focused investor. I want to talk to you about this strategy. In outperforming the Dow this year, is this something that you would do year after year? Is this a viable strategy for investors?

Kevin Simpson (Founder & CEO) 00:11.800

Listen, Frank, I don't think any passive strategy is the way I would play it, but I think the dogs of the Dow is a phenomenal place to look for and identify great companies. So, you think of it as a as a as a pool to siphon through. Because what you're looking for are

Kevin Simpson (Founder & CEO) 00:26.280

high-quality great companies that are out of favor, and you want to get into them before they're in vogue again. And yes, 2025 was a great year for the dogs. They were up over 17% which outperformed the broader Dow which I think was up somewhere in the the 13% range. But it's

Kevin Simpson (Founder & CEO) 00:42.640

worth noting I think that the the passive strategies are fine but it's exactly the the thesis that I have of using this as a filter why our actively managed strategy if you just look at DVO it outperformed both of those names. But equity income worked for a reason. It was

Kevin Simpson (Founder & CEO) 00:58.480

healthcare, legacy tech and balance sheet discipline, not speculation. Okay.

Frank Holland (Anchor) 01:04.760

You say a big part of this list is going to stay in tech. Amgen, Johnson& Johnson, Verizon, Chevron, Merck, Coca-Cola, and Procter& Gamble, if you want to play the strategy. You as a dividend-focused investor, which one of those names are you are you most bullish on going into

Frank Holland (Anchor) 01:17.960

next year? I'm not saying Dogs of the Dow, but if you want to use it as a starting point as you're saying, which of these names do you like?

Kevin Simpson (Founder & CEO) 01:24.000

Yeah, I mean to me the healthcare stands out. We've started to see that trade come to life at the end of 2025. See You've got Amgen, you've got Merck, you've got JNJ. I I would continue to focus there within the healthcare space. Number one. Number two, if you're looking just

Kevin Simpson (Founder & CEO) 01:38.920

for yield, 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 8.5% forward multiple. And Frank, the stock's paying almost a 7% dividend. So, if you're an

Kevin Simpson (Founder & CEO) 01:55.960

equity income investor and income is your primary objective, You can look at Verizon. And the third place I would look at, which is a newcomer to the list is Home Depot. Underperformed last year for a lot of different reasons. It's not just a yield play. It's not just yield

Kevin Simpson (Founder & CEO) 02:10.800

coming down to refresh the housing cycle. I really think that there's opportunities that if it just normalizes Home Depot can be a winner in 2026. So those are the names that I like. Okay,

Frank Holland (Anchor) 02:21.600

I want to keep the metaphor going. We're calling this that you know it's obviously the dogs that out. You say some of these dogs have fleas. What's a flea when it comes to this strategy? Clearly a flea is something you want to stay away with.

Kevin Simpson (Founder & CEO) 02:31.000

Well, you know, the idea is anytime you're looking at a passive list, there's dogs in this case there are dogs for a reason. So I think you really need to be selective and anytime that you're building portfolios and that's the lesson here, that's the teaching moment. As

Kevin Simpson (Founder & CEO) 02:44.320

professional portfolio managers, you got to start somewhere. You got to you've got to build a list somewhere. And I'll always look at the dogs of the Dow as a primary objective of dividends that are attractive, but I'm looking for things that are a little bit out of favor. If

Kevin Simpson (Founder & CEO) 02:58.400

you can buy low and sell high you know, easier said than done, but things tend to work out really well. I think 2026 can be another good year for this style box because I don't see rates going higher. That narrative, you know, that macro narrative plays into 2026. Yields were at

Kevin Simpson (Founder & CEO) 03:15.360

10-year uh yields were 4.8 to start 2025, finishing up here around 4.1. If we get just one more rate cut next year, it still makes dividend-paying stocks look good. But according to Bespoke, the dogs of the Dow 2025 performance was the best that we've seen since 2019. That was a

Kevin Simpson (Founder & CEO) 03:34.000

long time ago. They underperformed in 23, they underperformed in 24. So the message there is just making sure that you do your homework and that you're selective not just taking the easy road and and buying a passive list. 2000