Dogs of the Dow Mutual Fund Dividends
Highest Dividend Paying Stocks in the Dow Jones
There a few mutual funds that invest in the Dogs of the Dow stocks. And since these 'dogs' are also among the best stocks for dividends, they can be more attractive than their name suggests.
When you think of the term "dogs," especially in context of investing, it has an association with the low end of quality as it relates to price movement. But in the investment world, buying low is often a good thing.
So, with that backdrop, we'll take a closer look at these dogs and learn more about how to take advantage of the benefits.
What Are the Dogs of the Dow Stocks?
The Dow, formally called The Dow Jones Industrial Average, is an index consisting of 30 of the largest U.S. industrial stocks, of any given prior year. The Dogs represent the 10 highest-paying dividend stocks in the Dow Jones Industrial Average Index. But because price often moves in opposite direction as dividend yield, the Dogs of the Dow also have the distinction of being among the lowest performers in terms of price gain.
Hence a contrarian investing strategy might have an investor looking for bargains on stocks , or "dogs," that may be positioned to have a good year. However, a more widely applied use of the Dogs of the Dow is to capture the highest-yielding stocks for income purposes.
Mutual Funds Investing in Dogs of the Dow
There are only a handful of mutual funds and ETFs that invest in the Dogs of the Dow and none of them hold 100% "dogs;" they typically represent around 50% or so of these funds' portfolio holdings:
- Hennessy Balanced Fund (HBFBX): 50% of assets in the Dogs of the Dow, 50% in bonds.
- Hennessy Total Return (HDOGX): 75% in the Dogs, 25% in bonds.
- ALPS Sector Dividend Dogs ETF (SDOG): Starts with S&P 500 stocks and invests in the top dividend paying names.
Investing in Dogs of the Dow mutual funds can be a good way for investors to gain access to value stocks while earning income.
Also, dividend mutual funds can be wise alternatives to bond funds, albeit more risky, in low or rising interest rate environments. However, investors should be cautioned that they are concentrated within the value objective and may not be well-diversified. For example, during the market meltdown of 2008, financial stocks were some of the highest-paying dividend stocks but they were also the biggest losers during that bear market. Financial stocks were also market leaders in 2017.
On a final note, investing strategies are like food diets: There is no "best investment strategy" except the one that works best for you. Also you don't want to begin a strategy and find that you want to abandon it for some hot new trend you discovered in a magazine article. Don't get confused by all of the too-good-to-be-true flavors of the month and stick to the time-tested basics. And if you want to buy mutual funds that pay dividends, there's no need to hold a dogs of the Dow fund.
The bottom line is that mutual funds that hold Dogs of the Dow stocks can be used as a part of a diversified portfolio. But the leading determining factors in selecting mutual funds are the appropriateness of the fund in the investor's objectives and the investor's risk tolerance.
Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.