Dogs of the DOW

There are many different investment strategies out there that people employ and while they may not be right for everyone, they all definitely still have their merits if you do your research and invest wisely.  I don’t endorse any particular one strategy and urge each reader to do their own research to determine what risk they are willing to accept and to determine if any particular investment fits into their portfolio.

One strategy that may have merit for your portfolio is called the Dogs of the DOW.   This strategy is one that is usually employed at the beginning of the new year and involves picking the ten  of the 30 DOW components that have the highest dividend yields.  The strategy employed more rotation in one’s portfolio than I am comfortable with, so you have to be aware of trading fees, but you rotate out at the end of the year and into the next years Dogs.  The idea has been around for a long time, starting in 1991, and has had measured success over time.

This strategy has both good years where it crushes the DOW and has lackluster ones like this year where it is trailing the market.  As of July 14 the DOW 30 had returned 8.2% with dividend yield average of 2.63% while the Dogs have returned 2.6% with a yield of 3.65%.  This does not take into account the dollars averaged into the return on investment, just shear numbers.  Most likely it’s closer to a wash over the course of the year with the dividends factored in, but it shows that this year it has struggled to show a outperformance.

Last year, however, the Dogs returned 20.1% vs. the 16.5% that the Dow returned and since 2000 the DOW has returned 6.9% and the Dogs returned 8.6%.  So over time it looks like the investment strategy has a lot of merit.  I have factored in dividends reinvestment for the year back into the funds.

There are two types of Dogs, the normal kind in the DOW 30, and the small dogs.  Small dogs are part of the ten highest yields, but incorporate the lowest price overall in the bucket.  Investing in these stocks has been very lucrative as since 1973 they have risen 20.9% on average per year!  Again past performance isn’t indicative of future performance, but it is definitely something to consider given the past gains.

What do you think of the Dogs strategy?  Is it something that you have employed in your portfolio?




One thought on “Dogs of the DOW

  1. Good read. As you write, the Dogs of the DOW strategy certainly has its merits, if applied consistently, however it does not fit to my temperament and investment philosophy. I only invest in stocks I am willing to hold for decades, I collect the – hopefully growing – dividends and reinvest in existing holdings or build new positions. I let the companies and the compound effect do their work and try to “interfere” as little as possible (no stock rotations etc.).


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