Dogs of the Dow – Definition & Impact

Asset classes

Dogs of the Dow is a popular investment strategy. The strategy was first published in 1991 and focuses on investing in big companies that offer relatively higher dividends. Dogs of the Dow is also among the highly successful investment strategies. In fact, if we look at the 10-year stretch following the financial crisis, the strategy beat the index. Yes, that’s right and that’s what makes it a highly popular as well as highly successful strategy. 

Do you want to know all about Dogs of the Dow’s investment strategy? Are you also interested in knowing how to capitalize on this enticing strategy? Then you don’t need to go anywhere else. Because we are going to explain Dogs of the Dow in this post. We are going to cover exactly what this strategy is and what is its impact. So, keep reading with great attention. Let’s begin right away. 

Dogs of the Dow – definition 

Dogs of the Dow is an investment strategy that involves investing in the top 10 dividend-yielding stocks. These top-10 stocks are among the 30 stocks included in the Dow Jones Industrial Average (DJIA). 

Michael B. O’Higgins introduced the “Dogs of the Dow” term in his popular book “Bearing the Dow” published in 1991. The strategy became well-known over the years after its introduction. Nowadays, it is highly popular and one of the safest strategies to follow. How so? Because it is widely accepted that blue-chip companies continue to yield high dividends irrespective of the performance of their stocks.

How do the Dogs of the Dow strategy work?

As you know, the Dow Jones Industrials consist of the top 30 companies. These companies are widely regarded as titans of the market with blue-chip status. Moreover, the list of those elite companies doesn’t remain the same. From time to time, some companies lose their place and new companies book their spot on the list. 

Now, all investors know that the Dow Jones Industrials are elite companies, and their investment will be safe. Moreover, the Dogs of the Dow strategy involves investing in top companies among the 30 with the highest dividend yields but the lowest P/E ratio. In simple words, you are actually investing in companies with the lowest stock prices but the highest dividend yield.

How do you pursue the Dogs of the Dow investment strategy? There are multiple ways investors use this strategy. Let me tell you a very simple way. Invest in the 10 Dow Jones Industrials with the highest dividend yields with an equal dollar amount. You need to invest in these companies at the beginning of the year. In other words, you need to invest in companies lying temporarily in the zone not favored by investors. Being out of favor with investors means low stock prices as compared to their peers. Now, what do you have to do after investing? Hold your investment for a year and adjust your portfolio at the end of the year. Sell stocks of companies after a rebound and invest in the current Dogs of the Dow.

The impact 

What is the impact of the Dogs of the Dow investment strategy? Let’s try to understand it through some facts and figures. The history books tell us that this strategy returned 28% to investors in 1993. That is two years after it was introduced in 1991. It was 2X the overall Dow Jones Industrial Average and NASDAQ. Whereas, a 28% return in 1993 was 4X the S&P 500. Moreover, the history also testifies that the Dogs of the Dow strategy failed for only three years. In the last decade, it is reported to have returned over 18% to investors. 

In short, it is fair to say that the Dogs of the Dow investment strategy has outperformed the Dow Jones Industrial Average.

The wrap-up

Dogs of the Dow strategy revolves around investing in high-yielding dividend stocks among the 30 DJIA. This is because these are big companies and continue to yield higher dividends irrespective of their stock prices. Secondly, investors seek high-yielding dividend stocks with the lowest P/E ratio. That means they find DJIA stocks that are available at the lowest price. Investors hold their investment for a year, sell on a rebound, and start the process again at the start of the next year. 

Dogs of the Dow is a simple strategy. However, investment isn’t that simple for non-professionals and novices. Therefore, it is important for them to understand what they are doing. If beginners want to capitalize on this strategy, it is important to research a lot before investing your hard-earned money. Fortunately, there are numerous free online resources you can use to gather information and make informed investing decisions. 

Russell Crane

Russell Crane

Russell is an Algorithmic & Technical Analyst Trader @ PatternsWizard.
His passion is to share his knowledge about TA, patterns & more. Why hope for your trading to work when you can precisely know the performance stat of every pattern?

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