Dogs of the Dow

Key takeaways

• Dogs of the Dow is a simple dividend‑focused strategy that picks the 10 highest‑yielding stocks from the 30 components of the Dow Jones Industrial Average (DJIA) each year.
• Implementation: select the 10 highest dividend yields on the last trading day of the year, invest equal amounts in each on the first trading day of the new year, and rebalance annually.
• Rationale: high yields can indicate temporarily depressed stock prices among otherwise stable, blue‑chip companies—potential for price recovery plus income.
• Limitations: concentrated (10 stocks), potential sector bias, and high yield can reflect company distress. Historical returns have generally tracked the DJIA closely, sometimes outperforming and sometimes trailing.

What the strategy is

Dogs of the Dow is an investment rule that leans into high dividend yields within the DJIA. Rather than trying to pick winners on fundamentals or momentum, it uses a transparent, rules‑based approach: each year, pick the 10 DJIA components with the highest dividend yield and allocate equal dollar amounts to them for the next 12 months.

Why it might work

The strategy rests on two premises:
* Blue‑chip companies tend to maintain dividends even when share prices fall.
* A high dividend yield (dividend divided by price) often reflects a lower share price rather than a higher dividend, suggesting the stock may be undervalued and poised for recovery.

Reinvesting in these high‑yield blue chips annually aims to capture potential price rebounds while collecting above‑average income.

How to implement

1. At year‑end, calculate dividend yields for all 30 DJIA stocks.
2. Select the 10 with the highest yields.
3. On the first trading day of the new year, invest equal dollar amounts in each of the 10 stocks.
4. Hold for one year. At the next year‑end, repeat the selection and rebalance.

This can be done by buying individual stocks, or by using funds and screeners to approximate the approach.

Performance overview

Performance varies by period and market conditions:
* The Dogs have sometimes outperformed the DJIA and sometimes underperformed; long‑term results are often similar to the Dow because the strategy uses its components.
The Dogs suffered larger losses than the DJIA during the 2008 financial crisis but recovered in subsequent years.
Example trailing returns (illustrative periods): one decade showed modest underperformance versus the DJIA; in a recent five‑year span the Dogs trailed by a wider margin. Actual returns depend on the selected period and market cycle.

Risks and drawbacks

• Concentration risk: only 10 stocks increases idiosyncratic risk.
• Sector bias: the list can over‑weight certain industries depending on dividend patterns.
• Dividend traps: a high yield can reflect genuine business deterioration, risk of dividend cuts, or bankruptcies.
• Tax considerations: frequent rebalancing and dividends can create tax liabilities for taxable accounts.

ETFs and alternatives

There is no ETF that exactly replicates the traditional Dogs of the Dow (the top 10 DJIA yields picked annually), but some ETFs pursue related dividend strategies tied to Dow components or dividend weighting, for example:
* Invesco Dow Jones Industrial Average Dividend ETF (DJD)
* ALPS International Sector Dividend Dogs ETF (IDOG)

These funds vary in methodology and may not match the Dogs’ annual equal‑weight selection.

Recent example (2023 list)

A recent example of stocks that appeared among the highest‑yielding DJIA components includes:
* Verizon, Dow Inc., Intel, Walgreens Boots Alliance, 3M, IBM, Amgen, Cisco, Chevron, JPMorgan Chase

(Yearly composition changes based on dividend yields as of the last trading day of the year.)

Bottom line

Dogs of the Dow is an easy‑to‑understand, low‑maintenance dividend strategy that limits the investable universe to blue‑chip DJIA stocks. It can produce competitive long‑term results and steady income, but carries concentration and dividend‑risk drawbacks. Investors seeking pure total‑return performance may prefer broader market indices, while those prioritizing income and a simple, rules‑based approach may find the Dogs appealing.