Dogs of the Dow
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There are a few investment strategies or theories on how to
profit from the Dow 30 stocks. Besides just the typical "buy
low, sell high" mantra, many investors use technical and/or
fundamental indicators to judge whether a stock is indeed
priced fairly. While these research techniques are beyond
the scope of this article, there is a specific and popularized
strategy coined the "Dogs of the Dow". It was popularized
by Michael O'Higgins's book
and has been modified by others such as the Motley Fool. In
this long-term strategy, an investor simply does the
following:
As you might have guessed, the 10 highest-yielding stocks
are the most likely to be near their 52 week low. This
strategy is contrarian in nature and it can work assuming
that the companies keep their dividends intact and that the
companies will pull through the business cycles they are in.
If that happens, then the stock prices rise as the companies
come into favor again. In 25 years, the annualized returns
have been about 18%-19% versus market returns of 15%.
To the right is the Dogs of the Dow list beginning this year
starting from highest to lowest dividend yield.
profit from the Dow 30 stocks. Besides just the typical "buy
low, sell high" mantra, many investors use technical and/or
fundamental indicators to judge whether a stock is indeed
priced fairly. While these research techniques are beyond
the scope of this article, there is a specific and popularized
strategy coined the "Dogs of the Dow". It was popularized
by Michael O'Higgins's book
and has been modified by others such as the Motley Fool. In
this long-term strategy, an investor simply does the
following:
- Determine the 10 highest-yielding stocks of the Dow
- Purchase all 10 stocks in equal weights or only
purchase the 5 cheapest of these in equal weights - Hold on to these stocks for the year and then re-
balance annually
As you might have guessed, the 10 highest-yielding stocks
are the most likely to be near their 52 week low. This
strategy is contrarian in nature and it can work assuming
that the companies keep their dividends intact and that the
companies will pull through the business cycles they are in.
If that happens, then the stock prices rise as the companies
come into favor again. In 25 years, the annualized returns
have been about 18%-19% versus market returns of 15%.
To the right is the Dogs of the Dow list beginning this year
starting from highest to lowest dividend yield.
