Dogs Of The Dow

Definition

The Dogs of the Dow is an investment strategy that aims to outperform the Dow Jones Industrial Average (DJIA) each year by tilting the portfolio towards high-yield investments. The core concept of this strategy is to allocate funds to the 10 blue-chip stocks with the highest dividend yields among the 30 components of the DJIA. This strategy requires rebalancing at the beginning of each calendar year.

Origin

The Dogs of the Dow strategy originated in 1991, first introduced by Michael B. O'Higgins in his book 'Beating the Dow'. Its simplicity and historical performance have attracted the attention of many investors.

Categories and Features

The Dogs of the Dow strategy mainly divides into two categories: the classic Dogs of the Dow and the Small Dogs strategy. The classic strategy selects the 10 stocks with the highest dividend yields, while the Small Dogs strategy further selects the 5 stocks with the lowest prices among them. Both emphasize high dividend yield stocks, believing these are undervalued by the market and have rebound potential.

Case Studies

In 2000, General Electric (GE) and DuPont were typical representatives of the Dogs of the Dow strategy. Despite overall market volatility, these companies were selected for their high dividend yields and outperformed the market average in subsequent years. Another example is AT&T and Verizon in 2011, which were chosen as Dogs of the Dow and provided stable returns amid market uncertainty.

Common Issues

Investors often worry about the risks of the Dogs of the Dow strategy, especially during market downturns. A common misconception is that high dividend yields always indicate good investment opportunities, but in reality, this may reflect financial difficulties faced by the company. Investors should conduct a comprehensive analysis using other financial indicators.