Dogs of the Dow

What are Dogs of the Dow?

Dogs of the Dow is an investment strategy in which an investor aims to select a total of ten Dow stocks (known as Dogs) which have the highest dividends yields. The purpose of the strategy is to generate the highest yields for the investors by choosing those stocks that provide high dividend yields.

History

The strategy was brought into existence by Michael B. O’Higgins in 1991, and the same was published in a book written by him named “Beating the Dow.” The same was also uploaded later on over the official website of Dogs of the Dow. The strategy suggested that if ten such stocks are chosen that provide the highest dividend yieldsDividend YieldsDividend yield ratio is the ratio of a company's current dividend to its current share price.  It represents the potential return on investment for a given stock.read more, the overall performance will beat even the Dow index.

Dogs of the Dow

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How Does it Work?

Examples

Let us consider an example wherein an investor wants to make a total investment of $20,000 in the stocks, using the Dogs of the Dow strategy. Now, since 10 topmost stocks with the highest dividend yield are chosen, the amount that the investor would need to invest in each such stock comes to be $2,000 (i.e., 20,000/ 10).  It is known as equal price weightage as a similar investment is made in each stock irrespective of their prices.

Current Dogs of the Dow

Now, have a look at the list of stocks that form part of this in the year 2020.

  1. Dow
  2. ExxonMobil
  3. IBM
  4. Verizon
  5. Chevron
  6. Pfizer
  7. 3M
  8. Walgreens
  9. Cisco
  10. Coca-Cola

Criticism

Some analysts are criticizing the strategy due to the following facts.

Advantages

The investment strategy offers the following advantages to its followers.

  • The strategy is straightforward to apply, as there is no complexity in its application.
  • The topmost performing stocks are considered in the strategy, with respect to dividend yield, and they help an investor earn higher returns.
  • The strategy doesn’t involve any assumptions, and thus it is based on actual and reliable data.

Drawbacks

The strategy suffers from the following limitations.

  • Equal price weighing is used, which gives equal weightage to all the stocks instead of giving weightage to the prices of the stocks while making investments.
  • Also, as mentioned earlier, the strategy is way too simple and does not take into account critical and complex factors.

Conclusion

The strategy is straightforward in its application and doesn’t need any assumptions to be made. Thus, an investor can easily make use of this investment strategy to earn higher returns on the Dogs.

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