Dogs of the Dow Strategy: Simplifying Your Path to Wealth Building

The Dogs of Dow strategy (or the Dow Jones dogs) is based on the purchase of the first 10 components of the Dow Jones index with the highest dividend yield.

dogs of the dow

Dogs of the Dow meaning

The strategy, invented by Michael B. O’Higgins in 1991 and described in his book “Beating the Dow”, is about buying the 10 stocks that, at a given moment, have the best yield from dividends within the Dow Jones, and, after 12 months, eliminating those that no longer meet the requirements, replacing them with the stocks that at that time meet the only condition: having the best dividend yield.

The strategy is usually implemented on the first day of the stock market year, but it does not have to be so, it can be implemented at any time, The only condition is that the stocks are one year old in the portfolio.

It is an investment strategy linked to the Dow Jones index. It was made popular by the prestigious magazine Barron's, which published an article in which a study was made that shows that this strategy has managed to beat the market for several years.

Although the original strategy only invests in the Dow, the idea can be extrapolated to any index and created for others, such as the DAX or the CAC.

You may be interested in our in-depth beginner's guide to Dow's Theory.

How does the Dogs of the Dow strategy work?

As already mentioned, this strategy consists of buying at the beginning of the year the 10 titles with the highest dividend yield of the Dow Jones; in fact, it is at the beginning of each year that the portfolio is restructured to be composed of the 10 titles with the highest dividend yield at that time.

In the same way:

  • The strategy is automatic since there is no decision to be made; it is enough to restructure the portfolio at the beginning of each year.
  • In the original strategy, the restructuring of the portfolio is carried out on the first working day of the year, but it does not matter which day of the year it is done, as long as the portfolio is restructured exactly every 12 months.
  • In theory, the strategy can be exported to other indices such as the FTSE 100, the Eurostoxx 50, the CAC 40, or the DAX Xetra.
  • This strategy is a way to automate the contrarian theory, that is, it tries to “buy what others sell” and “sell what others buy” mechanically so that it can be executed by any investor.

In other words, this investment strategy is based on the premise that last year's laggards could be this year's leaders.

Performance of the Dogs of the Dow Strategy

If you are interested in this strategy, here is the list of the 10 titles that make up the “Dogs of the Dow” portfolio for 2023.

CompanyDividend yieldTicker
Verizon6.62%VZ
Dow5.56%DOW
Intel5.52%INTC
Walgreens5.14%WBA
3M4.97%MMM
IBM4.68%IBM
Amgen3.24%AMGN
Cisco3.19%CSCO
Chevron3.16%CVX
JP Morgan Chase2.98%JPM

Dogs of the Dow with fewer stocks

If you want to create a portfolio with a slightly smaller number of stocks, five to be precise, you can do it with the “small dogs of the Dow” basket that for 2023 contains these titles:

CompanyDividend yieldTicker
Verizon6.62%VZ
Dow5.56%DOW
Intel5.52%INTC
Walgreens5.14%WBA
Cisco3.19%CSCO

Dogs of the Dow ETF

Below is a list of exchange-traded funds that belong to the Dogs of the Dow category:

Name (Ticker)Current Price
ALPS Sector Dividend Dogs ETF (SDOG)$51.75
Invesco Dow Jones Industrial Average Dividend ETF (DJD)$43.77
ALPS International Sector Dividend Dogs ETF (IDOG)$25.76
ALPS Emerging Sector Dividend Dogs ETF (EDOG)$20.57
👉 If you'd like to venture into ETFs, we have a comprehensive guide to lead you through the process: How to choose an ETF.

Pros and cons of the Dogs of the Dow strategy

Advantages of the dogs of the Dow strategy

  • It is a simple strategy. Dogs of the Dow is a fairly simple strategy, and you only have to adjust your portfolio once a year.
  • Relatively low cost. With this strategy, you don't have to worry about paying a lot of trading commissions. Some online brokers, like Robin Hood, even let you make free trades. And it won't cost you anything to reinvest dividends if you have a free reinvestment plan.
  • Access to dividends. You have the opportunity to increase your portfolio and accelerate your returns, as the strategy targets DJIA companies with higher dividend yields.
  • Reasonable risk limitation. Blue chips are considered a bit more volatile than other stocks, such as biotechnology or startups. Therefore, they may not see the same price fluctuations

Disadvantages of the Dogs of the Dow strategy

  • You can still lose money. Any investment strategy, including this one, can cost money. If the market goes down, you still run the risk of losing. Even if your portfolio loses less than the DJIA as a whole, you still have money lost.
  • You need to be vigilant every year. You can't set it and forget it for several years. Dow companies issue or collect their dividends. Or their stock prices rise enough and no longer fit the strategy.
  • It can be difficult to use it with the market in decline. As with any strategy, it can be difficult to stick to the dogs of the Dow strategy when the market is in decline. However, if you can hold on to it, your portfolio will likely improve.

Conclusion

Dogs of the Dow can be a solid stock-picking strategy if you want to experiment with individual stocks. This strategy can be used as part of your overall investment portfolio, even if you index a portion of it or hold other assets. If you decide to incorporate the strategy, make sure to understand your goals and maturity risk. Make sure the strategy is complementary to the other strategies you use for your portfolio. Make sure you choose the right broker for you, this will help you immensely in your trading.

Related articles

FAQs

Why are they called the “Dogs” of the Dow?

The term “Dogs” refers to the stocks in the DJIA that have relatively high dividend yields, which may indicate that they are currently out of favor or overlooked by investors. The strategy suggests that these “Dogs” may have the potential for improved performance.

Who invented the dogs of the Dow strategy?

The Dogs of the Dow strategy was popularized by Michael B. O'Higgins in 1991 and detailed in his book “Beating the Dow.” While he is credited with popularizing the strategy, the concept predates his work.

Can the dogs of the Dow strategy be part of a diversified portfolio?

Of course. Investors may choose to allocate a portion of their portfolio to this strategy while diversifying across other asset classes to manage risk.

Is the dogs of the Dow strategy suitable for all investors?

The strategy may be suitable for some investors, particularly those seeking income through dividends and willing to accept the associated risks.

Related Articles