Dogs of the Dow

At the end of each year, traders like asking each other a very common question: “Did you beat the market?”. I get the same question every now and then when I talk about investing to others. While it is a valid question and has its value, my focus in investing is not to beat the market. Yes, you read that right – I am not interested in beating the market.
I understand why people ask this question; afterall, if you cant beat the market – why pick individual stocks instead of just buying the whole market using index funds? I think index funds have their place in most portfolios and a lot of people who do not have the time to manage a portfolio, understand investing or even dividend investors looking for broad market exposure (especially in bull markets) should use index funds for their investing needs.

So, if I am not interested in beating the market – how do I measure my performance? Simple – I am only interested in building and growing my income stream. Each year, I set a target of reaching my passive income to a certain level and keep investing until I hit that number to measure my performance. Nothing measures performance as cold hard cash that I see in dividends being deposited in my accounts week after week. But for the sake of this article, I will be exploring the trading strategy that was popularized by Michael B O’Higgins’ book Beating the Dow.
The investing strategy is extremely simple – the Dogs of the Dow are the 10 of the 30 companies belonging to the Dow Jones Industrial Average (DJIA) with the highest yield. The Dogs of the Dow strategy involves investors shuffling around the portfolio to adjust it to have equal allocation to the 10 highest yielding stocks. Why the highest yielders? Because those are the stocks that have fallen out of favor and the stock price has been punished for whatever reason resulting in a high yield. Generally speaking, the companies that belong on the DJIA are blue chip companies that have a solid track record over the years. So, chances of those DJIA companies going bust are extremely low.
The current dogs include AT&T (T), Verizon (VZ), Merck (MRK), Intel (INTC), Pfizer (PFE), McDonalds (MCD), Chevron (CVX), General Electric (GE), Cisco Systems (CSCO) and Microsoft (MSFT). I recently added AT&T (T) – the top Dog of the Dow to my portfolio. The company provides a juicy 5.3% yield and also has a track record of raising dividends year after year.
Do you use this or a similar strategy in your investment portfolio?
Full Disclosure: Long CVX, GE, T. My full list of holdings is available here.

25 thoughts on “Dogs of the Dow

  1. I see the logic in this approach, but I don’t use it. It makes sense to the contrarian in me that investing in large (well capitalized) companies…..when they are out of favor. Plus, given the size and maturity of these companies, they are less likely to go out of business than a startup.

    • I dont use it either, but I decide to buy T recently and while I was doing my research, I found that it was listed at the top dog of the Dow. Would be curious to know how many people use it. Thanks for stopping by and the input.


  2. Out of the 10 stock, I’m holding 3 of them. I’ll be adding the like of MCD & PFE soon. Personally feel that this list is kind of too heavy on the technology sector.

    All the best,

    • MCD looks attractively valued, David. A hear what you are saying about the tech stocks. The problem with tech is – you get ahead with innovation, but its hard to stay ahead with upstarts disrupting the field.

      Best wishes with your investments

  3. R2R,

    I love this strategy and have read the book and use the website all the time. The website actually gives you the results and dog members going back to 1996. I usually take it a step further and focus on the small dogs which are the five lowest price stocks within the ten highest yielders.

    The strategy while focusing on high yield companies actually is more of a total return strategy as it requires you to sell some companies each year and replace them with the new high yielders. I think is a great way to find out of favor high yielders for an income portfolio.

    If you want to take it a step further, you can go to the website. It too focuses on out of favor Dow companies, but using total one year return or the percentage below the 200 day moving day average. Last fall I picked up shares of IBM in the low 170’s as it was the worst one-year performer in the Dow based on price. Right now I believe MCD is worst performer and I have recently started buying shares of this company.

    Thanks for the article.


    • Thanks for sharing your insight, MDP. It sounds like a good rule of thumb as a value investor to look for the beaten down stocks and the dogs-list provides a good viewpoint on where things stand.

      Thanks for the tip on the underdogs. Ive never used technical analysis (TA) for my trading/investing. Its something that Ive been reading up a bit on. Although I think TA is silly and sort of a self fulfilling prophecy, once the fundamentals are figured out, TA might provide with some good tie-breaker decisions or a final say on when to initiate etc.

      Thanks for stopping by

  4. this goes back to a primal market misunderstanding among the general public. You get this question usually from people who do not have any strategy. how can somebody who has no strategy ask you such question? those who understand their strategy or goal will most likely ask you how did you do this year in the market, mostly referring toaccomplishment of your goal. My target is not to beat the market either.

    • Agreed, Martin. Talking to these folks for a while, I realize that they dont know what they are talking about as they seem to mix tax issues, account types, investing vehicles etc and use terms interchangeably – which have no correlation and arent related to each other one bit. I simply just have to shake my head and move on.

      Having a set of goals and working to achieve them is the first step to understanding what you as an investor or trader want to achieve. Rock on!

  5. Out of the 10 stocks I hold 6 of them but I’m not following this strategy. Looking at high yield isn’t everything, you need to look at dividend growth too.

    • Good point, Tawcan. Yes, high dividend yield for the sake of high yield isnt enough if it doesnt grow and cant keep up with inflation. The dogs of dow can provide an investor with a screening process to show which stocks could potentially be undervalued. Of course – the rest of the fundamentals should be carefully reviewed before taking a final decision.

      Thanks for the input.

  6. I really like this list of the current dogs and I am interested in several of them currently, AT&T, Microsoft, and General Electric to be specific.

    That current yield on AT&T is very nice! It can basically pay for debt in itself now that I think about it… too bad that one isn’t on Loyal3.

    • Thanks for stopping by and your thoughts, Kipp. Yeah thats right – if your borrowing rates are really low, then the high yield of some of the companies can easily cover the debt.
      I am envious of the Loyal3 service – as we dont have anything like that in Canada. You guys have a great product there and wish it makes its way across the border soon.

      Happy investing

    • Well I decided to pickup some AT&T into my ROTH… their dividend yield doesn’t even need to grow for it to surpass the interest on my mortgage… it was kind of an Aha! Moment. Not too many great companies that yield that much. We will see if a few months again if they are still over a 5% yield :).

  7. Although we don’t use this strategy either, there are a few names up there that I do find attractive right now: T, MCD, and GE. We already own AT&T (T) in two different accounts so probably won’t buy any more, but we did pick up a few shares on MCD and GE recently.

    Thanks for sharing. Best Wishes! AFFJ

  8. Anonymous says:

    Several years ago this was really popular, especially over on Motley Fool. But then people started closely and carefully examining the actual returns, especially if you employed this strategy but started/sold at different months of the year (e.g. jan-jan, feb-feb, mar-mar, etc). The results were that it essentially showed little verifiable gains over just buy and hold of the index for long periods (5+ years). So while I view it as a reasonable starting screen, I don’t view it as a reliable investment strategy.

    • Thanks for the input, Anon. Hmm thats interesting that the returns change when you start/sell at different months. I wonder if there is an explanation on that effect.
      I have always subscribed to the long term buy-and-hold strategy and thought that this was an interesting way to screen the equities….and a good point that other investors should not blindly follow the recipe, but should do some research of their own before following an investment strategy.

      Thanks for stopping by and the input. Appreciate it.

  9. R2R,

    Thanks for sharing! I do not employ this strategy myself, but I can understand why others would. I own two of the stocks, T and MCD, and have had some of the other dogs on my radar. I stumble on these stocks because my personal screener is set to identify stocks that may be discounted and have a high dividend yield. While I do not focus on the Dow Dogs specifically, they are included in my wider discount population. On an interesting side note, this strategy is very popular. When I was researching ETFs for a portion of my portfolio I stumbled on one that has a major allocation in Dow Dogs.

    Bert, One of the Dividend Diplomats

    • DD,
      Agreed that this screener provides a good shortlist to work with. Im interested in reading up a bit more to see how/why the returns change depending on various months of the year – as indicated by Anon above.

      Thanks for the input

  10. Anonymous says:

    I am all for active management and buying quality companies on dips. there is a case for buy and holding
    Take a look at this funds holdings
    Voya Corporate Leaders Trust Fund

    With virtually the same blue-chip companies it held in 1935, this passively managed trust has beaten the Dow Jones and the S&P 500 for over 40 years.

    • Thanks for the tip, Anon. I had a quick look at the holdings – and there are some companies that are newer than 1935. Also 40 years is a long time and the industry/economy changes – that is the reason why the indexes themselves keep adding/removing companies to better represent the economy.


  11. Anonymous says:

    Thanks for your response R2R. As a investor I dont need to hold stocks that reflect the whole economy thats the job of the indexes.
    Like yourself my holdings only need to meet my personal goals and from my perspective are best served by owning stocks that can grow regardless of what sector they represent.
    Since we cant predict the future using history as a guide shows there are some stocks that have stood the test of time and just might continue to do so.

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