What is the Dogs of the Dow?
"Dogs of the Dow" is a stock-picking strategy whereby an investor buys equal amounts of the 10 highest-yielding stocks within the Dow Jones Industrial Average at the beginning of each year. After every year, the investor updates their holdings to reflect the current highest-yielding stocks in the Dow.
How Does the Dogs of the Dow Work?
The Dogs of the Dow strategy was popularized in 1991 by renowned money manager, Michael O’Higgins, in his book, "Beating the Dow."
The Dogs of the Do" strategy is based on the idea that the 30 stocks within the Dow Jones Average are generally strong companies with profitable operations. Therefore, investors using this strategy believe the highest-yielding stocks still have strong businesses, but have simply been sold off (hence the term "dog"). With their higher yields and undervalued share prices, these stocks should rise in price faster than other members of the Dow.
However, the strategy also has a number of drawbacks. For example, an investor does little or no research on the companies they're investing in with this strategy. Sometimes even the stable stocks of the Dow sell off because of problems in the underlying business -- the high-yield may actually act as a warning signal.
Why Does the Dogs of the Dow Matter?
Dogs of the Dow represents one of the simplest strategies investors have used to try and outperform the broader market. However, the recession of 2008-09 caused many to question the strategy after Dow components like General Motors saw major losses. Many other components saw high yields from falling share prices that ended with dividend cuts.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
Perhaps no other man in the history of economics enjoys the rock-star status ...Read More →
Usually it's easy to tell if you've stumbled upon a good idea at the office; your boss gives you positive feedback in the form of either an "atta boy" or maybe even a raise. ...Read More →
There are some questions you tend to expect when you walk into a job interview these...Read More →
Every parent with more than one child knows that not all kids are created equal. One child may be super responsible, the other carefree; one child may be healthy, one may have a chronic disease;...Read More →