Where My Dogs At?

I'm talking about the 'Dogs of The Dow' investing strategy, this strategy involves investing in the 10 Dow Jones Index stocks with the highest yielding dividend yield at the beginning of the year and holding onto these equities for a year. At the end of the year the strategy involves adjusting the portfolio of these 10 stocks at the beginning of each year.

This strategy first originated in 1972, and has remained popular among casual investors due to its ease, also there is an ETF (SDOG) which mirrors this investing strategy. There is the opportunity for investors to personally invest in these 10 stocks, however depending on transaction costs it may be more cost-effective to invest in this ETF. The ETF which best tries to emulate the Dogs of the Dow selects components out of the S&P 500 instead of the DJIA. SDOG weights all 10 sectors across the market, then includes 5 of the highest yielding dividend stocks in each sector.

History and Variations of the 'Dogs of the Dow' Theory:

All total returns in the graph depicted below are calculated using reinvested dividends, cost of commissions are not included, the mutual funds selected below are among the largest U.S domestic growth equity
funds.

An important aspect to understand of the Dogs return is that it is very skewed due to Hewlett-Packard. Although the Dogs theory hasn't outperformed the DJIA index by a large magnitude historically speaking the approach has shown a favorable return.

Other Variations of the 'Dogs of the Dow' Appraoch

1. The Small Dogs of the Dow (Dow 5): Purchasing the 5 Dogs of the Dow that have the lowest per share price
2. Dow 4: Involves purchasing the 4 highest priced stocks of the Dow 5
3. Foolish 4: This strategy was originated by Motley Fool, and involves selecting the same stocks as the Dow 4 but allocates 40% of the portfolio to the lowest prices of these four stocks and 20% to the other 3 stocks

Ultimately this investing approach has proven to be popular with people that want to be more hands-off with their investing strategy as opposed to stock-picking. I have not practiced this method of investing, this article is simply for learning purposes.

Thanks for reading and if you have any questions feel free to comment!