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dogs of the dowWhen tracking your investment portfolio, you might compare its against a stock market index such as the Dow Jones Industrial Average. Ideally, you want investments to beat the Dow. The Dogs of the Dow investing strategy attempts to identify value stocks. What’s its history, does it work, and how can investors take advantage?

Dogs of the Dow Defined

dogs of the dowThis investment strategy firs appeared 1991 when Michael B. O’Higgins shared it in his book, “Beating the Dow.” He later put it on the strategy’s eponymous website. As the title of the book suggests, this investment strategy aims to beat the Dow’s performance.

With Dogs of the Dow, investors choose the 10 Dow stocks with the highest dividend to achieve the greatest possible yield from an investment. Remember, a dividend is a quarterly payment made to shareholders, usually from its profits. That differs from a stock’s yield, which is its earnings. Investors hold these investments for exactly one year, then at the end of that calendar year, liquidate their investments and put that money toward the next year’s “dogs.”

The Dogs of the Dow investment strategy is based on the premise that companies issuing these blue-chip stocks do not alter their dividends based on market performance. As a result, they are a more accurate representation of the company’s financial health and an investment’s worth.

The term “dog” comes from the idea that normally, stocks with a high dividend would be underdogs when it comes to performing well on the market. Companies that pay shareholders high dividends are not always high performers on the market. Meanwhile, high dividends mean they may not have the funds to reinvest in their business, an important part of a business’ growth.

Does Dogs of the Dow Work?

But why would you base your investments on a lesser-known investment strategy, rather than a widely-used market index like the Dow or the S&P 500? Well, some supporters of the Dogs of the Dow strategy argue that the strategy’s performance is comparable to that of the Dow.

As an investment strategy, the Dogs of the Dow is fairly solid. It outperformed the Dow more years than not over the last decade. Good market performance, plus the high dividend payments also increased investors’ earnings.

Plus, the investment strategy is fairly simple, another draw. All an investor has to do is invest in the 10 companies with the highest dividends at the onset of a calendar year. They hold these investments for a year. Then, they liquidate at the close of the calendar year. Finally, they repeat the process with the next year’s “dogs.”

How Investors Can Take Advantage

dogs of the dowSo what are the Dogs of the Dow? Well, the 2019 Dogs of the Dow are: IBM (5.52% yield), ExxonMobil (4.81% yield), Verizon (4.29% yield), Chevron (4.12% yield), Pfizer (3.3% yield), Coca-Cola (3.29% yield), JP Morgan Chase (3.28% yield), Procter & Gamble (3.12%), Cisco Systems (3.05% yield), and Merck (2.88% yield).

Investing with this strategy is simple, though it’s time-sensitive. You’ll need to wait until the last day of the calendar year at market close for it to work. At this point, you’d identify the Dogs of the Dow. They’re the 10 blue-chip stocks on the Dow with the highest dividends. Then, on the first day of the new year, invest an equal amount of funds into each. You’ll hold these investments for the duration of the calendar year, at which point you’ll liquidate and repeat the process.

During the year, you’ll likely enjoy a market performance similar to that of the Dow’s. Also, you’ll reap the high dividends that are the hallmark of these 10 stocks. Keep in mind that the Dogs of the Dow investment strategy is fairly simple, plus it’s considered low risk. That’s because these stocks (the dogs) are all blue-chip stocks. That means they’re from stable companies, often with high dividends.

The Bottom Line

Dogs of the Dow is an investing strategy that attempts to identify value stocks. Investors choose the 10 stocks within the Dow with the highest dividends. They hold them for a year, then liquidate at the close of the year. The process repeats the next year, with next year’s “dogs.”

The Dogs of the Dow aims to beat the Dow Jones Industrial Average. Proponents of this investment strategy argue that its performance is comparable to that of the Dow, one of the major stock market indexes out there. The Dogs of the Dow investment strategy is considered both fairly simple and low risk since these stocks (the dogs) are all blue-chip stocks.

Investment Tips

  • Is Dogs of the Dow the right strategy for your portfolio? You may want to ask a financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Have you considered how much investment risk you’re willing to take? Do you know how much your investment needs to grow to reach your goals? How much will inflation and capital gains tax take out of it? SmartAsset’s investing guide can help you lay a foundation for your investments before you consider strategies like Dogs of the Dow.

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Rachel Cautero Rachel Cautero writes on all things personal finance, from retirement savings tips to monetary policy, even how young families can best manage the financial challenges of having children. Her work has appeared in The Atlantic, Forbes, The Balance, LearnVest, SmartAsset, HerMoney, DailyWorth, The New York Observer, MarketWatch, Lifewire, The Local: East Village, a New York Times publication and The New York Daily News. Rachel was an Experian #CreditChat panelist and has appeared on Cheddar Life and NPR’s On Point Radio with Meghna Chakrabarti. She has a bachelor’s degree from Wittenberg University and a master's in journalism from New York University. Her coworkers include her one-year-old son and a very needy French bulldog.
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