Dogs of the Dow: Definition, List of Stocks, Performance

Dogs of the Dow: Definition, List of Stocks, Performance

The Dogs of the Dow is an investment strategy that involves selecting and investing in a group of high-dividend-yielding stocks from the Dow Jones Industrial Average (DJIA). The strategy is based on the idea that blue-chip companies with high dividend yields are temporarily undervalued and have the potential to provide above-average returns.

Definition

The Dogs of the Dow strategy was popularized by Michael B. O’Higgins in his book “Beating the Dow.” According to this strategy, an investor selects the ten stocks from the DJIA with the highest dividend yield at the beginning of the year and holds them for the entire year. The portfolio is then rebalanced annually by selling stocks that are no longer in the top ten and replacing them with the new highest-yielding stocks.

List of Stocks

Performance

What are Dogs of the Dow?

The Dogs of the Dow is an investment strategy that involves selecting and investing in a specific group of stocks from the Dow Jones Industrial Average (DJIA). The strategy is based on the idea that the stock market tends to overreact to short-term events, causing some stocks to be undervalued relative to their true worth.

How Does the Dogs of the Dow Strategy Work?

The Dogs of the Dow strategy is relatively simple to implement. At the beginning of each year, investors identify the ten stocks from the DJIA with the highest dividend yields. These stocks are considered the “dogs” because their high dividend yields suggest that they may be undervalued by the market.

Investors then allocate an equal amount of capital to each of the ten dogs and hold them for the entire year. At the end of the year, the process is repeated, and the portfolio is rebalanced to include the new dogs for the upcoming year.

The theory behind the Dogs of the Dow strategy is that high dividend yields indicate that a stock is out of favor with investors, which may present an opportunity to buy the stock at a discounted price. Additionally, by focusing on dividend-paying stocks, investors can potentially earn income from their investments even if the stock prices do not appreciate significantly.

Potential Benefits and Risks of the Dogs of the Dow Strategy

The Dogs of the Dow strategy has several potential benefits. First, it is a relatively simple and straightforward strategy to implement, making it accessible to both individual and institutional investors. Second, by focusing on dividend-paying stocks, the strategy provides a potential source of income for investors. Finally, historical data suggests that the Dogs of the Dow strategy has outperformed the broader market over the long term.

How to Create a Dogs of the Dow Portfolio

Creating a Dogs of the Dow portfolio is a relatively simple process that involves selecting a group of stocks from the Dow Jones Industrial Average (DJIA) and rebalancing the portfolio annually. Here are the steps to create your own Dogs of the Dow portfolio:

Step 1: Understand the Dogs of the Dow Strategy

Step 2: Research the Current Dogs of the Dow

Next, you need to research the current Dogs of the Dow. These are the ten stocks with the highest dividend yields in the DJIA. You can find this information online or through financial news sources. Make a list of these stocks and their current dividend yields.

Step 3: Determine the Weighting of Each Stock

Once you have the list of Dogs of the Dow stocks, you need to determine the weighting of each stock in your portfolio. This can be done based on the dividend yield of each stock. For example, if a stock has a higher dividend yield, you may allocate a larger portion of your portfolio to that stock.

Step 4: Rebalance Annually

Step 5: Monitor and Adjust

List of Current Dogs of the Dow Stocks

As of [current year], the following stocks are considered the Dogs of the Dow:

• Company A
• Company B
• Company C
• Company D
• Company E
• Company F
• Company G
• Company H
• Company I
• Company J

Investors who are interested in implementing the Dogs of the Dow strategy can use this list as a starting point for their portfolio construction. However, it is always advisable to conduct thorough research and analysis of each individual stock before making any investment decisions.

Performance of Dogs of the Dow Strategy

The Dogs of the Dow strategy is a popular investment strategy that involves selecting a portfolio of stocks from the Dow Jones Industrial Average (DJIA) with the highest dividend yields. The strategy is based on the idea that these high-yielding stocks are undervalued and have the potential for future growth.

But how does the Dogs of the Dow strategy actually perform? Let’s take a look at the historical performance of this strategy.

Historical Performance

Over the years, the Dogs of the Dow strategy has delivered mixed results. Some years, the strategy has outperformed the overall market, while in other years, it has underperformed.

For example, in 2020, the Dogs of the Dow strategy had a total return of -7.6%, while the DJIA had a total return of -4.6%. This means that the strategy underperformed the market by 3 percentage points.

However, in 2019, the Dogs of the Dow strategy had a total return of 22.3%, outperforming the DJIA’s total return of 18.4%. In 2018, the strategy also outperformed the market with a total return of -1.5% compared to the DJIA’s total return of -5.6%.

Risks and Considerations

While the Dogs of the Dow strategy can be an attractive investment approach, it’s not without risks and considerations.

Another consideration is that the strategy relies on the assumption that the market will eventually recognize and correct the undervaluation of the high-yielding stocks. However, there is no guarantee that this will happen, and the stocks could remain undervalued for an extended period of time.

Conclusion