Are the “Dogs of the Dow” Worth Their Chow?


Whenever I hear Christmas bells, I know it’s time to check out the “Dogs of the Dow.” Yes, I know, purchasing the “Dogs of the Dow” is not a guaranteed profit process.  Still, over the years, I’ve pinpointed Dow Dogs that have fetched tasty returns.

As you know, the Dow Jones Industrial Average (DJIA) is an index in the U.S. stock market comprised of 30 of the most well-known and respected companies in the world, often referred to as “blue chips.”

Many market players invest in the index by purchasing exchange traded funds (ETFs), such as the SPDR Dow Jones Industrial Average ETF (DIA).high yield investments

The Dogs of the Dow is a variation on that theme. Here’s how it works:  At the beginning of a new year, investors construct a portfolio of the ten companies in the Dow that pay the highest dividend yields. Typically, those investors hold those positions for a year.

At the beginning of the next year, they readjust the portfolio, so it once again holds the ten Dow companies that produce the highest yield.

The strategy makes sense, as when you purchase shares of the Dow yielding the highest percentage dividends, you are buying the ten cheapest companies in the Average—companies that are out of favor, or “dogs” as we refer to them (with apologies to our furry friends).

When you purchase shares in these bargain-basement puppies, your expectation is that other investors will recognize their true value.  Result?  If the Dogs’ prices run higher, by the end of the year you will have pocketed a nice chunk of capital appreciation.

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From 1957 to 2003, the Dow’s Dogs outperformed the Average by about 3%. Between 1973 and 1996, the Dogs were the Dow’s real stars, fetching an average return rate of 20.3% annually, while the Dow’s returns averaged 18.8%.  In 2011 (a “see-saw” year for the market), the Dow Dogs brought home 8.3%, whereas the Dow, itself, averaged just 3.3%.

Now, do these pooches always outperform the Dow?  Of course not. (If any strategy always worked in the market, we would all be zillionaires.)  So far this year, the DJIA is higher by about 18.5%, while the Dogs are up just 10%. But that’s okay with me.  If the margin of low performance stays true, it means the Dogs may outperform the DJIA in 2018.

If you’d like to check out the current Dogs of the Dow, here’s a list current as of November 28.

Also, while AT&T (T) is no longer a member of the Dow, I also like it as a Dow Dog stand-in; it has been beaten up pricewise this year, and as I write, pays a substantial dividend of 5.53%.

As always, on any new investment, please perform your own due diligence before buying shares.

We will see in 2018 if the Dogs of the Dow are worth their chow!

Until next time, keep green on your screen,

Toni Turner

Toni Turner, President of TrendStar Group, LLC, is an accomplished technical analyst as well as a popular educator and sought-after speaker in the financial arena. She is the author of the bestselling books: A Beginner’s Guide to Day Trading Online, 2nd Ed., A Beginner’s Guide to Short-term Trading, 2nd Ed., Short-Term Trading in the New Stock Market.Toni has appeared on CNN,CNBC, NBC, MSNBC, and FOX Business News.