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Investing in the Dogs of the Dow

Updated on October 29, 2014

The Dogs of the Dow

This is a very simple investing strategy that involves buying the 10 highest yielding stocks on the DJIA (Dow Jones Industrial Average) once a year. The Dow Jones Industrial Average is 30 big US companies. The genius of this strategy is the simplicity of it. It really requires almost no research in order to get a decent return on your money. By buying the highest yielding stocks, you're getting a nice yield, as well as stocks that are out of favor and low in price.

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Dividend Investing Resources

What exactly is the Dogs of the Dow Investing Strategy?

The idea is that the Dow laggards, are only temporarily out-of-favor but are still good companies because they are included in the DJIA. The Dow Jones only consists of quality companies with solid balance sheets so you should be pretty safe buying any of them. And the average is tinkered with consistently so you can be assured that good companies will be out and better ones will be in.

If the dividend yield of a company is very high, it's probably because the stock price is low. The idea of the Dogs of the Dow strategy is to use the dividend yield to find the companies with the lowest stock prices.

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How do I invest in the Dogs of the Dow?

The Dogs of the Dow is a very simple strategy that consists of buying the 10 highest yielding stocks on the Dow Jones Industrial Average once a year. It's traditionally done on January 1st.

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Does it work?

Results are mixed, with the Dogs of the Dow Strategy beating the DJIA and the S&P 500 in some years, but not in others. Part of the genius of it is that if enough people follow the strategy, it can put pressure on the stocks involved to push their prices higher. This strategy can help with your investing because it's so simple. It can work well for the following reasons:

1. For those that don't have much time to research stocks, it's perfect. You only have to do a simple search one a year to find the 10 highest yielding stocks on the DJIA and buy them.

2. It reduces trading costs. You only make 10 trades/year.

3. It can reduce emotional trading. Emotions are generally the enemy of investors, because it can cause them to make bad decisions. Selling when they should be buying and buying when they should be selling.

How Much Money Do I Need for this Investing Strategy?

When you invest money, you really shouldn't invest very small quantities in each individual stock since you have, since you pay trading fees for each transaction that you make. Sogotrade.com has very cheap $3 trades, but other platforms charge up to $20 or more. To carry out this strategy, I recommend at least $10 000/year, so you can invest $1000 in each of the 10 stocks. $3 trading fees on $1000 isn't that much, but $3 on $300 is a significant amount.

Or, if you have less money, you could just invest in the top 5 highest yielding stocks on the DJIA each year instead of the top 10.

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Historical Results

From 1957 to 2003, the Dogs outperformed the Dow by 3%, averaging 14.3% annually, whereas the Dow averaged 11%. Between 1973 and 1996 the Dogs returned 20.3% annually, while the Dow averaged 15.8%. Lately, results have not been so good as there have been a few duds such as GM and Citigroup in the index that brought the results down.

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Investing in the Dogs of the Dow

2014 Dogs of the Dow and their Dividend Yield

AT&T 5.34%

Verizon Communications 4.76%

Intel 4.36%

Merck 4.2%

Pfizer 3.83%

DuPont 3.82%

Hewlett-Packard 3.72%

General Electric 3.62%

McDonald's 3.49%

Johnson & Johnson 3.48%

Shouldn't I Diversify Beyond US Companies?

Although all the companies on the DJIA are US companies, many of them are very well diversified beyond the USA and earn much of their revenues around the world. For example, some 2011 Dogs of the Dow like Pfizer, Merck, Kraft, and Johnson & Johnson are huge companies that operate world-wide.

More Dogs of the Dow

What do you think of this strategy?

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    • profile image

      Betty 2 years ago

      Just taking a look at the uydlrening spreadsheet I think it has to do with my number one goal of saving liquid dollars (for the upcoming house purchase this year). So those months where I had low growth I still saved my normal amount but the market took a hit. I am NOT any type of guru so I think your prediction will hold true eventually. I have to have a down month this year. On a side note I am VERY conservative. I was talking to a buddy that does investments the other and he said that my mind set is more into fixed income.

    • profile image

      mstcourtjester 4 years ago

      My kind of lens, keep up the good work.

    • chrisqw profile image

      chrisqw 5 years ago

      Interesting strategy.

    • ChrisDay LM profile image

      ChrisDay LM 6 years ago

      Just need the dosh, now!