Dogs of the Dow is an investment strategy where you pick 10 of the 30 stocks on the Dow Jones Industrial Average (DJIA) which have the highest dividend yields. You then hold these high-yield stocks for a year, and then at the end of the year you choose a new set of ten dogs.

The Dogs of the Dow was popularized by Michael O’Higgins in his book Beating the Dow, which was published in 1991. O’Higgins demonstrated how over 17 years from 1973 to 1989, this strategy returned an average of 17.9 percent annually compared to 11.1 percent returned by the entire DJIA.

The Theory behind the Strategy

The theory behind this investment strategy is that these large established companies listed on the DJIA do not alter the amount of dividends they pay out according to trading conditions. In other words, the dividend paid out is a reflection of the average worth of the company.

So, a high-yield dividend company will usually be at the bottom of its business cycle, and is likely to see its price rise faster than a low-yield dividend company, which will usually be near the top of its business cycle.

This means that an investor who annually reinvests in high-yield dividend paying companies should outperform the market as a whole.

The logic underpinning the Dogs of the Dow investment strategy is that the:

1. stock has been oversold and is in short supply

2. management has confidence in the company’s prospects, so rather than reinvest in the business, it demonstrates its confidence by paying out high dividends to its shareholders.

Nuts and Bolts of the Strategy

1. At the start of the year (or it can be any other date), choose and buy equal amounts of the 10 stocks with the highest dividend yields on the Dow Jones Industrial Average.

2. Hold these 10 stocks for exactly one year.

3. After one year, you review your list of stocks.

4. Sell those stocks that are no longer part of the 10 highest dividend-yielding stocks on the Dow Jones Industrial Average.

5. Replace these “out of favor stocks” with stocks that have made it to the list of the 10 highest yielding stocks on the Dow Jones Industrial Average.

Note: Check the requirements for paying long-term capital gains tax on your profits. You may have to hold your stock for one year and just one day to claim lower taxes on your profits.

Table of Contents

1. Introduction
2. Fundamental Analysis
3. Qualitative Analysis
4. Value Investing
5. Growth Investing
6. GARP Investing
7. Income Investing
8. CANSLIM
9. Dogs of the Dow
10. Technical Analysis 1
11. Technical Analysis 2
12. Technical Analysis 3
13. Technical Analysis 4
14. Jim Cramer’s Strategies
15. Warren Buffet’s Strategies
16. Intrinsic Value