Dogs of the Dow Mutual Fund Dividends

Highest Dividend Paying Stocks in the Dow Jones

dogs of the Dow
Can 'Dogs of the Dow' funds be an investor's best friend?. Getty Images

There a few mutual funds that invest in the Dogs of the Dow stocks. However, this investing strategy is not just for market timers. These 'dogs' are also among the best stocks for dividends.

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. In different words, Dogs of the Dow  can be attractive for the bottom dwelling value investors.

But let's take a closer look at these dogs and learn more about how to take advantage as investors.

What Are the Dogs of the Dow Stocks?

The Dogs represent the 10 highest-paying dividend stocks in the Dow Jones Industrial Average Index,. The Dow is an index consisting of 30 of the largest U.S. industrial stocks, of any given prior year. 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 that are 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:

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.

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 too-good-to-be-true flavors of the month and stick to the time-tested basics.

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 the appropriateness of the fund in the investor's objectives and for 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.