Dogs of the Dow Investment Strategy

A Simple Investing Strategy Based On High Dividend Paying Stocks

Dog floating in a pool on a pink float
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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.

Overview

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, 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.

2017 Dogs of the Dow

According to www.dogsofthedow.com, the below are 2017’s Dogs of the Dow. This list is based on the closing performance for 2016.

  • IMB (IMB) - 3.37% yield
  • Boeing (BA) - 3.65% yield
  • Chevron (CVX) - 3.67% yield
  • Caterpillar (CAT) - 3.32% yield
  • ExxonMobil (XOM) - 3.32% yield
  • Merck (MRK) - 3.19% yield
  • Verizon (VZ) - 4.33% yield
  • Coca-Cola (KO) - 3.38% yield
  • Pfizer (PFE) - 3.94% yield
  • Cisco Systems (CSCO) - 3.44% yield

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.

The Balance does not provide tax, investment, or financial services and advice. The information 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.