Dogs of the Dow Mutual Fund: A Time-Tested Investment Strategy

The Dogs of the Dow mutual fund strategy has been around for decades, and its simplicity is part of its enduring appeal.

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

This approach is based on the idea that the highest-yielding stocks are more likely to perform well in the future.

By investing in these high-yielding stocks, you can potentially benefit from their future growth and income.

The Dogs of the Dow Mutual Fund is an investment strategy that focuses on stocks that pay dividends. These dividend-yielding stocks are listed in the Dow Jones Industrial Average (DJIA).

The top 10 dividend-yielding stocks are selected and evenly invested in, providing a diversified portfolio. This approach is based on the idea that mature companies pay dividends as a way of distributing profits.

Higher dividend yields typically mean lower stock prices, which can be an attractive option for investors looking for a steady income stream.

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 blue-chip companies don't alter their dividend to reflect trading conditions, and dividend is a measure of the average worth of the company.

To select the top 10 stocks, you need to look at the dividend yield of the Dow Jones Industrial Average (DJIA) companies. The stocks with the highest dividend yield are considered the "Dogs" of the Dow.

The strategy involves investing an equal dollar amount in each of the top 10 stocks at the beginning of the year, and then repeating the process annually. This means buying individual stocks, which can be considered especially risky.

The idea is that the stocks with the highest dividend yield are near the bottom of their business cycle, so their stock price will likely increase faster than companies with low dividend yields. This is because dividend yield is a measure of the average worth of the company.

Here's a list of the 2023 Dogs of the Dow:

The strategy was first popularized in 1991 by Michael B. O'Higgins' book "Beating the Dow", and has been a viable investment strategy for those who have a high appetite for risk and are prepared to ride out market swings.

The Dogs of the Dow mutual fund has a unique performance history that's worth exploring. Despite experiencing greater losses during the 2008 financial crisis than the Dow Jones Industrial Average (DJIA), it made up ground in the following decade.

The fund's trailing total return from 2013 to 2023 was 10.02%, which is slightly lower than the DJIA's 11.48% return over the same period. This shows that while the Dogs of the Dow may not have kept pace with the index in the long run, it still delivered a respectable performance.

In the last five years, from 2018 to 2023, the Dogs of the Dow trailed the DJIA with a wider gap, turning in a trailing total return of 5.29% compared to the DJIA's 8.39%. This indicates that the fund's performance may have been more inconsistent in recent years.

There isn't an ETF that specifically invests in the Dogs of the Dow strategy, but there are ETFs that invest in a similar strategy with a dividend focus on the Dow.

The Invesco Dow Jones Industrial Average Dividend ETF (DJD) and the ALPS International Sector Dividend Dogs ETF (IDOG) are two examples of ETFs that track a similar strategy.

These ETFs offer a way to invest in a dividend-focused portfolio, but it's essential to note that they don't track the exact Dogs of the Dow strategy.

ETF tracking can be a bit tricky, and it's not always easy to find an ETF that perfectly matches your investment strategy.

One example is the Dogs of the Dow strategy, which invests in the top 10 dividend-performing companies in the Dow. Unfortunately, there isn't an ETF that specifically tracks this strategy.

However, there are ETFs that invest in a similar strategy with a dividend focus on the Dow, such as the Invesco Dow Jones Industrial Average Dividend ETF (DJD) and the ALPS International Sector Dividend Dogs ETF (IDOG). These ETFs may not perfectly replicate the Dogs of the Dow strategy, but they can provide a similar exposure to dividend-paying stocks in the Dow.

The Companies in Industry section is where things get interesting. Verizon is a telecommunications company, one of the largest in the US.

The Dogs of the Dow, a popular investment strategy, includes several companies from the energy sector. Chevron, for example, is a major oil and gas company.

Let's take a look at the companies listed in the Dogs of the Dow for 2023. Here are the companies grouped by industry:

Dow, another company in the Dogs of the Dow, is actually a chemical company, not a financial one.

The Dogs of the Dow strategy can be a smart way to invest, but it's not without its limitations. A study found that after accounting for trading costs and taxes, the strategy didn't show a substantial boost in average returns from 2000 to 2017.

You can use the InvestMete strategy to identify beaten-down stocks in the DOW that are closer to their 52-week lows than their 52-week highs. This can be a more direct means of identifying problem companies.

InvestMete is a program that will do all the math for you, so you don't need to gather information and make 30 calculations. Just enter the DOW components into the Tickers field and enter any number for the Amount.

The strategy leaves little room for diversification, which is a crucial part of investing. A well-diversified portfolio includes a mix of asset classes and different investments.

You can use the InvestMete strategy as part of your overall investment strategy, but it's essential to remember that investing in stocks is always risky.

The Dow laggards, which are temporarily out-of-favour stocks, are still good companies because they are still included in the DJIA.

Companies in the Dow have historically been very stable companies that can weather any market decline with their solid balance sheets and strong fundamentals.

Holding on to these companies, which are temporarily out of favour, is a smart idea in theory, as they are likely to rebound once the market revalues them properly.

The premise of this investment style is built on the idea that Dow laggards, or temporarily out-of-favour stocks, are still good companies because they're included in the DJIA.

Companies in the Dow have historically been very stable, with solid balance sheets and strong fundamentals that allow them to weather any market decline.

The DJIA's committee continually reviews and updates its components, ensuring that the index is made up of good, solid companies.

You can rest assured that the DJIA is a reliable benchmark for good companies, as it's comprised of the 30 largest and most influential companies in the US.

The Dow of Dogs has slightly underperformed the DJIA in the past 10 years.

If you're looking for fixed payments in your portfolio, the Dow of Dogs can still be a good dividend strategy.

Investors seeking pure returns may find the DJIA or the S&P 500 to be a better overall investment for the long term.

The Dow of Dogs is a viable option for those prioritizing dividend payments over high returns.

The Small Dogs of the Dow strategy is essentially a smaller version of the original Dogs of the Dow, selecting the five companies with the lowest stock price from the original list.

The number of companies in the portfolio is significantly reduced, which may appeal to small investors who don't want to hold a large number of stocks.

According to the comparison table, the Small Dogs of the Dow outperformed the S&P 500 in the 2008 financial crisis, but its shorter history is limited to rising markets only.

Here's a comparison of the Dogs, Small Dogs, and S&P 500 returns over different time periods:

The Small Dogs of the DOW strategy selects the five companies with the lowest stock price from the original Dogs of the DOW portfolio.

This strategy is even simpler than the Dogs, which might be a drawback for some investors. However, as the article notes, a simple strategy that can beat the professionals should definitely be considered.

The Small Dogs strategy slightly outperformed the Dogs and S&P 500 during the financial crisis of 2008, but its performance is not consistently better over the long term.

Here's a comparison of the Dogs, Small Dogs, and S&P 500 over different time periods:

The differences between the Dogs and Small Dogs strategies are not significant enough to consider, but the Small Dogs may be more appealing to small investors who don't want to hold a large number of stocks.

The "X" in Dogs of the DOW X refers to the flexibility to adjust the number of stocks in the portfolio.

The original Dogs strategy selects ten companies, but research suggests that a better number is seven for the Dogs of the DOW and three for the Small Dogs of the DOW.

This reduction in the number of stocks has led to outperformance of the S&P 500 and the original Dogs and Small Dogs strategies.

The Dogs of the DOW X and Small Dogs of the DOW X strategies have outperformed the S&P 500 over the past 5, 10, and 20 years.

Here's a comparison of the returns:

Investing in a smaller number of stocks makes sense, especially for those who prefer a long-term approach and don't mind holding onto their investments until they need the money or feel it's no longer serving them.