What are the "Dogs of the Dow"?

By Investopedia Staff AAA
A:

The Dow Jones Industrial Average (DJIA) is an index of 30 of the most significant, mature and respected companies in the world. Investing in the index itself over the long term is a fairly sensible strategy. The "Dogs of the Dow" is a variation on this strategy developed in 1972 in an attempt to beat the overall index.

The strategy involves building a portfolio equally distributed among the 10 companies in the DJIA that have the highest dividend yield at the beginning of the year, then readjusting this portfolio on an annual basis to reflect any changes that have occurred to these 10 companies throughout the calendar year. By buying these companies, you are essentially buying the cheapest stocks in the DJIA - companies that are temporarily out of favor with the market but still remain great companies. Of course, the hope is that the true value of these bargain stocks will be realized, and you will be able to capture a tidy profit at the end of the year by selling them and buying the new "Dogs of the Dow". When you readjust your portfolio to include the new dogs, you are just buying the stocks that are currently out of favor with the market and waiting for them to go up.

From 1957 to 2003, the Dogs outperformed the Dow by about 3%, averaging a return rate of 14.3% annually, whereas the Dow's averaged 11%. The returns between 1973 and 1996 were even more impressive: the Dogs returned 20.3% annually, while the Dow's averaged 15.8%. However, you should always remember the important caveat attached to almost any investment strategy: Past performance does not guarantee future results. So, although the Dogs have performed well in the past, there is no guarantee that this trend will continue.

To learn more, read Barking Up The Dogs Of The Dow Tree.

RELATED FAQS

  1. What is the minimum amount of money that I can invest in a mutual fund?

    Learn about investing in mutual funds even with a smaller initial investment; there are many funds available to investors ...
  2. How do I sign up for a TreasuryDirect account?

    Invest in Treasury securities by dealing directly with the U.S. Department of the Treasury online, conveniently managing ...
  3. How can I get a mutual fund prospectus?

    Read and understand the prospectus before investing in a mutual fund. You can obtain a copy from the fund company, your financial ...
  4. Can I purchase mutual funds for my IRA?

    Learn how to invest your IRA assets in mutual funds. Discover a few of the different types of mutual funds available for ...
RELATED TERMS
  1. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  2. Acquisition

    A corporate action in which a company buys most, if not all, ...
  3. International Finance Corporation

    The International Finance Corporation is an organization dedicated ...
  4. International Finance

    Definition of international finance
  5. Bulldog Market

    A nickname for the foreign bond market of the United Kingdom. ...
  6. Bidder

    The party offering to buy an asset from a seller at a specific ...
Related Articles
  1. Alibaba's Top Competitors
    Investing News

    Alibaba's Top Competitors

  2. Analysis of Companies with high goodwill
    Investing Basics

    Analysis of Companies with high goodwill

  3. The Enduring Importance Of The DJIA
    Economics

    The Enduring Importance Of The DJIA

  4. What Does The Dow Jones Industrial Average ...
    Investing Basics

    What Does The Dow Jones Industrial Average ...

  5. How To Invest In The Nikkei 225
    Mutual Funds & ETFs

    How To Invest In The Nikkei 225

Trading Center