Explore Your Options by Tom Gentile
NEW TWIST ON AN OLD STRATEGY
Dogs of the Dow is a stock-picking strategy
devoted to selecting high-dividend stocks.
Over time, the dogs of the Dow have yielded
about 50% more per year on average than
simply buying the Dow Jones Industrial
Average (DJIA). The questions are, will
this trend continue, and is there safety in
buying the dogs in the case that the market
pulls back in the future?
Investing in the dogs of the Dow is relatively
simple. After the stock market closes
on the last day of the year, of the 30 stocks
that make up the DJIA, select the 10 stocks
with the highest dividend yield. The strategy
involves investing equal dollar amounts in
each stock that qualifies as a ďdog.Ē Then you
hold these 10 dogs for one year.
Repeat this task every year. It
canít get any simpler than that.
The safety is in the dividend
yields, and with the market having
a great year, itís surprising
that there are still great dividends
to be had. There are a few that
I like for more than that reason,
though. Of the 10 dog stocks,
take a look at the cheapest five,
which are called the puppies of
the Dow, or the small dogs. They offer a
lower stock price, and are considered safer
for that reason. The investment strategy
is no different from the dogs of the Dow
strategy. Letís look at the dogs over the past
year, as well as their dividend return from
the start of 2013.
The 10 stocks listed in Figure 1 are ranked
by dividend return for the year going forward.
The small dogs in the far right column are
noted by a yes in their prospective box. And
though 2013 was a stellar year for the stock
market overall, the dogs still outperformed!
As of this writing, big dogs were returning
3% more than the DJIA itself, while small
dogs were returning nearly 8% more for