What Is the Dogs of the Dow Investment Strategy?

The Dogs of the Dow investment strategy is one that was created by Michael Higgins and was first illustrated in his book called "Beating the Dow." This investment strategy is one of the simplest stock picking strategies that you could use. At the same time, it has also proven to be very effective. 


This particular strategy has managed to beat The Dow Jones Industrial Average every year since 1953. Over that amount of time, it has averaged over a 14% return on investment. This is a great track record that most stock picking strategies cannot boast. Even though this strategy has been very successful, if you try to employ it, you should know that there are no guarantees that it will continue to perform. Anything can still happen in the stock market.

The Strategy

The idea behind the Dogs of the Dow strategy is very simple. At the beginning of the year, you will look at all of the 30 stocks that make up the Dow Jones Industrial Average. You will then sort the stocks by dividend yield. At that point, you will purchase the 10 stocks that are at the top of the list. You will divide the amount of money that you have to invest equally among those 10 stocks. At the end of the year, you will look at the stocks in the Dow Jones Industrial Average again. You will sort the stocks by dividend yield and again purchase the top 10 stocks. Every year, you will re-balance your portfolio based on this strategy. 


The reason that this strategy works has been the subject of much debate over the years. The basic idea behind the strategy is that looking at companies that issue the highest dividends and have the best value will provide you with the best returns. The companies that are in the Dow Jones Industrial Average and have high dividends are considered to be strong companies overall. They generally go through periods of down performance and when they keep their dividend steady, this raises the dividend yield of the companies. The investors then come along and purchase these stocks at the proper time. Then, over the course of the next year, these companies will increase in value.


Using this strategy can provide you with some definite advantages as an investor. One of the biggest benefits that you will receive is that this strategy does not take much time to complete. You will only have to look at your portfolio once every year at the end of the year. You can generally look at the Dow Jones stocks in a few minutes and sort them by dividend yield. Then, you only have to sell the stocks that are no longer included in the top 10 and purchase the new stocks.

Another advantage of this strategy is that it is extremely simple. Anyone can do this and it does not take a lot of knowledge about the financial markets to bring in steady returns.