Dog

DEFINITION of 'Dog'

One of the four categories or quadrants of the BCG Growth-Share matrix developed by Boston Consulting Group in the 1970s to manage different business units within a company. A Dog is a business unit that has a small market share in a mature industry. It therefore neither generates the strong cash flow nor requires the hefty investment that a Cash Cow or Star unit would (two other categories in the BCG matrix). The term Dog may also refer to a stock that is a chronic underperformer and hence a drag on the performance of a portfolio.

BREAKING DOWN 'Dog'

Since a Dog ties up valuable capital and resources that can be more effectively deployed elsewhere in the company, it is a logical candidate for sale or divestment. However, a Dog may sometimes have a broader role to play within a company; for instance, it may offer products that complement those offered by other business units in the company, or it may be a portal that gets customers interested in the company’s other products. In such cases, management would have to decide whether the synergies and intangible gains offered by this business unit justify the capital tied up in it.

In the majority of cases, since a Dog typically operates in a mature industry, management would not be justified in allocating more capital to it in a bid to expand market share. If the unit’s long-term prospects are bleak, the best course of action might be to sell or divest the business as soon as possible, since its deteriorating prospects would make it harder to sell with time.

In the business world, a Dog is very unlikely to ever return to its glory days as a Star or Cash Cow. In the world of investments, however, a stock that is a Dog one year can eventually become a Star, if management executes a turnaround that improves the stock’s profitability and prospects. This is the basic premise behind the “Dogs of the Dow” strategy, which buys the highest dividend yielders in the DJIA based on the notion that these stocks can outperform the index over time as they improve their operating performance and financial results.