What Are The Dogs Of The Dow?

A Simple Investing Strategy Based On High Dividend Paying Stocks

Have you ever been watching a financial news network or reading a financial newspaper and heard or seen the phrase “Dogs of the Dow?”  If so, did it pique your interest?

The Dogs of the Dow is a simple investing strategy that first became popular in 1991 when Michael B. Higgins wrote his book "Beating the Dow."  The Dow Jones Industrial Average (DJIA) is comprised of 30 companies that are high quality dividend paying stocks.

The Dogs of the Dow strategy focuses on identifying the 10 companies out of the 30 in the index that have the highest dividend paying yields.  In addition to the looking for above average yields, these are also the companies that are not expected to cut their dividend and often outperform the other stocks in the index on a total return basis.   

Dogs Of The Dow investment strategy

As mentioned above, the Dogs of the Dow approach is known for its simplicity.  The strategy calls for investors to take the following steps:

  1. Sort the 30 stocks in the Dow Jones Industrial Average by dividend yield.
  2. Purchase the 10 highest yielding dividends stocks.
  3. Hold onto these 10 stocks for one calendar year, until the following and then repeat steps one and two.  Adjust your portfolio so that it is equally allocated in each of these 10 stocks.

Does this strategy work?

History reveals that during certain time periods, the Dogs of the Dow outperformed the Dow by about 3% annually, but there’s no guarantee that this will happen in the future.

  In fact, in the past five years, the there have been two years in which the Dow has outpaced the Dogs of the Dow. Investors and analysts are generally mixed. Some put a lot of merit into this investing strategy, while others are more skeptical due to the fact that it neglects to take other important factors into consideration such as growth, price volatility, and payout ratio.

Additionally, while the Dogs of the Dow may perform the Dow in certain years, that doesn't always mean that they outperform the broader market, the S&P 500. 

2016 Dogs of the Dow

According to www.dogsofthedow.com, the below are 2016’s Dogs of the Dow.  This list is based on the closing performance for 2015.

1. Verizon (VZ) - 4.9% yield

2. Chevron (CVX) - 4.8% yield

3. Caterpillar (CAT) - 4.5% yield

4. IBM (IBM) - 3.8% yield

5. ExxonMobil (XOM) - 3.8% yield

6. Pfizer (PFE) - 3.7% yield

7. Merck (MRK) - 3.5% yield

8. Proctor & Gamble (PG) - 3.3% yield

9. Wal-Mart (WMT) - 3.2% yield

10. Cisco Systems (CSCO) - 3.1% yield

If you are wondering about this year's Dogs of the Dow year-to-date performance, please see this recent article posted on the website 24/7 Wall StreetDogs Of The Dow On Fire In 2016

Bottom Line

The Dogs of the Dow can be a safe and simple investing strategy. However, it's important to keep in mind that history does not always repeat itself, and you may not outperform the Dow year over year.  If you do utilize this investing strategy, remember that your biggest returns will be seen when you have a long-term time horizon.     

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Disclosure:  This information is provided to you as a resource for informational purposes only.  It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors.  Past performance is not indicative of future results.  Investing involves risk including the possible loss of principal.  This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.