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Dogs of the Dow

A stock-picking strategy that uses the ten highest dividend-yielding stocks from the Dow Jones Industrial Average each year

What are the Dogs of the Dow?

The Dogs of the Dow refers to a stock-picking strategy that uses the ten highest dividend-yielding stocks from the Dow Jones Industrial Average (DJIA) each year. The Dogs of the Dow strategy, a long-term investment strategy, was popularized by American money manager and author Michael B. O’Higgins in 1991.

 

Dogs of the Dow

 

Summary:

  • The Dogs of the Dow investment strategy picks the top ten highest dividend-yielding stocks from the Dow Jones Industrial Average (DJIA).
  • The premise behind the Dogs of the Dow investment strategy is to pick companies near the bottom of the business cycle by using dividend yield as a proxy.
  • The Dogs of the Dow investment strategy was popularized by American money manager and author Michael B. O’Higgins.

 

Concept of the Dogs of the Dow

The concept of the Dogs of the Dow is based on the dividend yield. Recall the formula for dividend yield:

 

Dogs of the Dow - Dividend Yield Formula

 

Where:

  • Annual Dividend is the amount of dividends paid over a one year period; and
  • Share Price is the current trading price of the company’s stock.

 

Companies that list on the Dow, termed “blue-chip stocks,” are well-established and financially sound businesses with a market capitalization in the billions – such companies usually do not alter their dividend policies.

In contrast, the share price of companies on the Dow fluctuates through the business cycle – a company that is near the bottom of the business cycle would exhibit a lower share price than if it were near the peak of the business cycle.

Therefore, the Dogs of the Dow investment strategy selects stocks with a high dividend yield and are theoretically near the bottom of their business cycle. In doing so, the strategy believes that companies near the bottom of the business cycle will have their share price appreciate more quickly than other companies that are near the middle or top of their business cycle.

 

Dogs of the Dow Strategy

 

Employing the Dogs of the Dow Strategy

The Dogs of the Dow strategy is employed in the following manner:

 

Step 1

At the beginning of the year, evenly allocate the capital in your portfolio to each of the top ten dividend-yielding stocks on the Dow. The investor would hold the positions until the year-end.

For example, an investor with a portfolio of $10,000 in 2019 would allocate $1,000 to each of the top ten dividend-yielding stocks.

 

Step 2

At the end of the year, re-determine the top ten dividend-yielding stocks on the Dow.

For example, at the end of 2019, the investor would re-determine the top ten dividend-yielding stocks.

 

Step 3

Rebalance by selling your positions and re-allocating the capital into the new top ten dividend-yielding stocks determined in Step 2.

For example, if the portfolio is now worth $15,000, the investor would sell his positions and re-allocate $1,500 to each of the new top ten dividend-yielding stocks on the Dow.

 

The 2019 Dogs of the Dow

As provided by DogsoftheDow.com, the following are the 2019 Dogs of the Dow:

SymbolCompany  Yield
IBMInternational Business Machines  5.52%
XOMExxonMobil  4.81%
VZVerizon  4.29%
CVXChevron  4.12%
PFEPfizer  3.30%
KOCoca-Cola  3.29%
JPMJP Morgan Chase  3.28%
PGProcter & Gamble  3.12%
CSCGCisco Systems  3.05%
MRKMerck  2.88%

 

Example of the Dogs of the Dow Strategy

Tim recently read about the Dogs of the Dow strategy and wanted to employ the strategy into his portfolio. Provided below are the share price, annual dividend, and dividend yield of 30 different companies on the Dow. Using the Dogs of the Dow Strategy, with $100,000 to invest, which stocks would Tim choose and how should he allocate the capital in his portfolio?

 

Sample Table

 

Using the Dogs of the Dow investment strategy, Tim would choose the top ten dividend-yielding stocks from the list above.

 

Additional Resources

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Stock Investing: Guide to Growth Investing
  • Dow Divisor
  • NASDAQ Composite
  • Stock Index

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