Dogs of the Dow Strategy: A Proven Investment Approach

The Dogs of the Dow strategy is a simple yet effective way to invest in the stock market. It involves selecting the 10 highest-yielding stocks from the Dow Jones Industrial Average at the end of each year.

This strategy was popularized by Michael B. O'Higgins in his 1991 book "Beating the Dow." The idea is to buy the 10 highest-yielding Dow stocks and hold them for the next year.

By focusing on dividend yield, the Dogs of the Dow strategy aims to provide a relatively stable source of income. This approach can be beneficial for investors seeking regular income and reduced volatility.

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The Dogs of the Dow strategy is a long-term investment approach that uses the ten highest dividend-yielding stocks from the Dow Jones Industrial Average each year.

This strategy was popularized by American money manager Michael B. O'Higgins in 1991, as outlined in his book Beating the Dow.

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The strategy requires rebalancing at the beginning of each calendar year to the new highest-yielding Dow stocks.

By investing in these high-yielding stocks, also known as "dogs", you're essentially looking for undervalued assets that are often overlooked by investors.

The term "dogs" refers to the strategy of looking for the highest-yield Dow stocks, which are typically the ones that are viewed as being out of favor with investors, or "in the doghouse."

The underlying thesis of this strategy is that these "dogs" are often down for short-term reasons, and the market's overreaction has created an opportunity for contrarian investors.

This is a contrarian, value stock strategy that eschews growth stocks and focuses on undervalued assets.

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The Dogs of the Dow strategy is a straightforward formula designed to perform roughly in line with the Dow. It's based on the idea that the 10-highest dividend-yielding stocks in the DJIA are a good bet.

This strategy was first popularized in 1991 by Michael B. O'Higgins in his book Beating the Dow. The book coined the name "Dogs of the Dow" and introduced the concept to a wider audience.

The premise of this investment style is that the Dow laggards, which are temporarily out-of-favour stocks, are still good companies because they are still included in the DJIA. Holding on to them is a smart idea, in theory.

The Dogs of the Dow strategy requires rebalancing at the beginning of each calendar year. This means you'll need to re-determine the top ten dividend-yielding stocks on the Dow at the end of each year.

The strategy involves investing in the 10 highest-yielding stocks in the Dow Jones Industrial Average and then reallocating the portfolio annually to the new highest-yielding Dow stocks. This is a contrarian, value stock strategy that eschews growth stocks and focuses on undervalued assets.

The Dow Jones Industrial Average is made up of 30 components, and the strategy involves selecting the top 10 dividend-yielding stocks from this group. This is done by looking at the dividend yield of each stock and selecting the ones with the highest yield.

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The results of the Dogs of the Dow strategy can be widely divergent from year to year. In some years, the portfolio may outperform the Dow, while in others it may underperform.

The strategy is designed to be low-maintenance and long-term, making it a good option for investors who want to mimic the performance of the DJIA.

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The Dogs of the Dow strategy is employed by selecting the 10-highest dividend-yielding stocks in the DJIA on the last day of the year.

You can choose any amount to invest, but for this example, let's say you have $100,000 to put into the market.

Using the Dogs of the Dow investment strategy, the top ten dividend-yielding stocks from the DJIA are chosen to invest in.

Each of these stocks receives an equal dollar amount of the investment, so in this case, $10,000 would be invested in each of the top ten stocks.

The portfolio is held for a year, then the process is repeated at the beginning of each subsequent year.

This strategy is designed to be a low-maintenance, long-term approach that mimics the performance of the DJIA.

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The Dogs of the Dow strategy has been around for a while, and its long-term results are impressive. It's been proven to mimic the performance of the DJIA.

The strategy involves investing in the 10 highest-dividend-yielding stocks from the Dow Jones Industrial Average. This is done by selecting the top 10 stocks from the DJIA based on their dividend yield.

The dividend yield is a key factor in this strategy, and it's calculated by dividing the annual dividend by the stock price. For example, in 2019, the highest dividend-yielding stock was IBM with a yield of 5.52%.

The strategy is designed to be low-maintenance and long-term, making it appealing to investors who want to generate strong returns with relatively lower risk. By rebalancing the portfolio every year, investors can take advantage of temporary price dislocations and an eventual recovery.

Here are the 2019 Dogs of the Dow:

The strategy's focus on dividend stocks makes it appealing to investors looking for income. By investing in the 10 highest-dividend-yielding stocks, investors can generate strong returns while also receiving a steady stream of income.

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The Dogs of the Dow have consistently outperformed the market as a whole since the 1920s. For the twenty years from 1992 to 2011, the Dogs of the Dow on average matched the average annual total return of the DJIA (10.8 percent) and outperformed the S&P 500 (9.6 percent).

The Small Dogs of the Dow, which are the five lowest-priced Dogs of the Dow, outperformed both the Dow and S&P 500 with an average annual total return of 12.6 percent. This suggests that the Dogs of the Dow strategy is a solid long-term investment approach.

A 1998 study found that the Dogs of the Dow exploited the "market overreaction hypothesis", taking advantage of investor psychology and the tendency to overreact to negative news. However, the study also noted that the Dow stocks with high-dividend yield were not necessarily the worst performers any given year.

Professor Jeremy Siegel has endorsed the Dogs of the Dow, describing it in The Future for Investors (2005) as “one of the most successful investing strategies of all time." The Dogs method can be particularly effective in bear markets, according to Siegel, as “dividends cushioned the declines in the market”.

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Here's a comparison of the Dogs of the Dow and the DJIA over the last decade:

Despite losing more in 2008 than the index, the strategy made up ground and turned in a respectable performance for the decade with a very similar result to the DJIA.

The Dogs of the Dow method relies on the premise that blue-chip companies don't alter their dividend to reflect trading conditions. This means that companies with a high dividend relative to stock price are likely near the bottom of their business cycle.

In contrast, the stock price does fluctuate throughout the business cycle. This makes high-dividend-yielding companies potentially good investments, as their stock price likely would increase faster than companies with low dividend yields.

Professor Jeremy Siegel has endorsed the Dogs of the Dow, describing it as "one of the most successful investing strategies of all time." He notes that the method can be particularly effective in bear markets, as "dividends cushioned the declines in the market".

The 2023 Dogs of the Dow are listed below:

Research shows that the Dogs method tends to result in superior risk-adjusted performance relative to market averages over long periods. However, the method may also result in more volatility and short-term underperformance.

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The Dogs of the Dow strategy has shown impressive performance over the years, outpacing the Dow by about 3% from 1957 to 2003. This significant difference in returns is a key reason why this strategy has gained popularity among investors.

The Dogs' average annual return rate was 14.3%, a substantial margin above the Dow's 11%. This performance gap is a testament to the strategy's effectiveness.

From 1973 to 1996, the Dogs' returns were even more remarkable, averaging 20.3% annually. This is a staggering figure that highlights the strategy's potential for long-term growth.

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The Dogs of the Dow Methodology is based on the idea that blue-chip companies tend to maintain their dividend payments regardless of market conditions.

This approach assumes that a company's dividend is a reflection of its intrinsic value, while its stock price fluctuates with the business cycle.

Companies with high dividend yields relative to their stock price are likely near the bottom of their business cycle, making their stock prices more likely to increase faster than those with low dividend yields.

The Dogs of the Dow strategy involves selecting the 10 highest-yielding stocks from the Dow Jones Industrial Average and investing in them annually.

Here are the 2023 Dogs of the Dow, ranked by their dividend yield:

The Dogs of the Dow investment strategy is a straightforward approach to investing. It involves selecting the top ten highest dividend-yielding stocks from the Dow Jones Industrial Average (DJIA).

This strategy relies on the idea that companies with high dividend yields are often near the bottom of the business cycle. By using dividend yield as a proxy, investors can potentially pick up undervalued companies.

Michael B. O'Higgins popularized this investment strategy through his writings. His approach emphasizes the importance of dividend yield in identifying undervalued stocks.

To implement the Dogs of the Dow strategy, you'll need to identify the top ten highest dividend-yielding stocks from the DJIA. This will give you a list of potential investments to consider.

Here are the top ten highest dividend-yielding stocks from the DJIA, based on the Dogs of the Dow strategy: