Demystifying The ‘Dogs of the Dow’ Investing Strategy

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As you track your investment portfolio, you will probably compare it against a stock index market like the Dow Jones Industrial Average. As an investor, you want your investments to beat the Dow. The Dogs of the Dow is an investment strategy that attempts to beat the Dow through investment in high value stocks. Let us learn more about the Dogs of the Dow’s history, how it works, and how you can take advantage as an investor.

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History of the Dogs of the Dow

The investment strategy can be traced to 1991 when Michael NB. O’Higgins wrote his book, “Beating the Dow.” O’Higgins was interested in creating an investment strategy that beats the Dow’s performance.

The Dogs of the Dow is founded on the premise that companies issuing blue-chip stocks do not change their dividends depending on the market performance. O’Higgins used the term ‘dog’ to refer to stocks with high dividends as the underdogs in the market. Companies that pay high dividends are not always the best performers.

Does the Dogs of the Dow strategy Work?

As an investor, you have probably used various well-known investment strategies like the Dow and the S&P 500. The question is why use a lesser-known strategy like the Dogs of the Dow?

Investors who have used the Dogs of the Dow argue that it is a solid investment strategy. It is often compared with the Dow Index, and the Dogs of the Dow investing strategy has consistently outperformed the Dow.  It is associated with good market performance, high dividends, and increased earnings.

In 2007-2009, Dogs of the Dow failed to beat the Dow 30 Index; since then, the strategy has outperformed the Dow 30 Index. In 2010, the Dogs gained by 16% compared to 9% by the Dow. In 2011, the Dogs performed much better than the Dow by 11%. The Dogs have consistently performed better than the Dow in the last decade, though the Dogs suffered a 1.5% loss in 2018 while the Dow endured a 6% loss. The Dogs also failed to beat the Dow in 2019 as it had an average return of 13.5% compared to the Dow 30 Index’s return of 20%.

Additionally, Dogs of the Dow is a simple strategy. The investor only picks 10 companies with highest dividends from the Dow Index at the beginning of the year. The investor holds on to the investment until the end of the year, then liquidates the stocks at the end of the year. The investor repeats the same process for next year’s “dogs”.

“Dogs” of 2020 to watch out for

If you are interested in Dogs of the Dow strategy, then you should watch out for the 2020 “Dogs.” These are high value stocks that were identified at the beginning of the year. Investors using Dogs of the Dow strategy are waiting to liquidate their stocks by the end of the year to see if they beat the Dow and make a killing. Investors are hoping that this year’s dogs will beat the Dow Index.

Here are 2020 dogs to watch out for:

International Business Machine (IBM),  Exxon Mobil Corporation (XOM), Verizon Communications (VZ), Chevron Corporation (CVX), Pfizer (PFE),  Coca-Cola Company (KO),  Cisco Systems (CSCO), 3M (MMM),  Dow (DOW), and  Walgreens Boots Alliance (WBA).

The Bottom-Line

Dogs of the Dow strategy works by identifying high value stocks.  Investors using Dogs of the Dow strategy have made profits as it has consistently outperformed the Dow Index, making it one of the best investment strategies.  The bonus is that the investment strategy is simple and low risk as the focus is on blue-chip stocks.