Dogs of the Dow
by Charles Rotblut, CFA
Every January, Dogs of the Dow draws attention. The strategy is simple. At the start of every calendar year, sort through the 30 stocks in the Dow Jones Industrial Average and buy the 10 with the highest yields. An equal dollar amount is allocated to every stock and the portfolio is held for the entire year. On the first trading day of the next calendar year, repeat the process.
The idea behind the strategy is that every year a new portfolio will be created. This portfolio is designed to be held for 12 months. Investors should profit by purchasing supposedly out-of-favor stocks whose relative yields suggest their valuations are attractive.
In this article
- Why January?
- Can Yield Measure Valuation?
- Dogs of the Dow Is Restrictive
- A Better Way to Use the Strategy
- View an Updated List on AAII.com
- Related Articles on AAII.com
Share this article
Facebook
Twitter
E-mail
SeekingAlpha
Stumbleupon
Delicious
LinkedIn
Why January?
The idea of buying the 10 highest-yielding Dow components was popularized by Michael O’Higgins and John Downes in “Beating the Dow” (Harper), first published in 1990. In the 2000 edition, the authors also discussed implementing the strategy at different times, such as in October or mid-December.
In actuality, there may be no benefit to buying stocks on the first day trading day of the New Year as opposed to, say, the day after Thanksgiving. While studies have shown that the markets tend to perform better between November and April than between May and October, last year “selling in May and going away” would have caused you to miss out on a rally that sent the Dow higher by more than 18%.
To read more, please become an AAII Registered User or CLICK HERE.
Discussion
I am posting my questions here, even though it's not regarding the Dogs of the Dow, because I didn't know where else to post it.
Maybe I've overlooked something but....
1. Why isn't standard deviation and Sharpe Ratio provided for each stock screen?
2. Even though the "Portfolio Charactistics of Stock Screens" summary table provides "market cap" expressed in dollars, it doesn't label each by asset class (or sub asset class -- e.g. large cap value, large cap growth, etc.)
I ask this because the importance of asset allocation (by asset class) has been throughly credited as the single most dominating factor in long-term returns. It seems that
Thanks!
posted over 2 years ago by Bill from Indiana
I am a new subscriber. I notice that all recommendations are based on fundamental data with no mention of technical analysis involving entries, position sizing or specific exits. I have a sneaking suspicion why this is, but I like to hear your response. Regards.
posted over 2 years ago by Peter from Arizona
Mario, if there is a question we can answer for you, you send us a note on our contact page: http://www.aaii.com/contact/journal -Charles Rotblut
posted 11 months ago by Charles from Illinois
It would be interesting to see some research on using the 'dogs of the Dow' strategy on the S&P 500 or S&P 100. For example, instead of buying the 10 highest yielding stock in the Dow, what would the results have been if an investor had bought the 10 of the highest yielding stocks in the S&P 500 or S&P 100? That's a much bigger selection of stocks.
Does anyone know if that has been researched?
posted 6 months ago by Sudhir Joshi from Texas
In the 1980's, aided by a rising market, I bought Dow Dog 5 stocks in my IRA, $3000. each. Following the recommended procedure, each year in the following 4 years, I balanced the 5 stocks, the amount per stock kept rising. At the end of the 5 years my $15,000. initial investment had grown to $75,000. I currently have a Dow Dog 5 Trust which just matured. The past year it gained 15%.
posted 6 months ago by Marion Miller from Indiana
Can you tell me how the "Dogs of the Dow" has performed over perhaps the last 10 years.
posted 5 months ago by Darryl Weidler from Massachusetts
Darryl,
You can see performance for all our screens, including Dogs of the Dow, in the stock screening area of the website: http://www.aaii.com/stock-screens/
-Charles
posted 5 months ago by Charles Rotblut from Illinois
Where can I find a current list of the dogs of the Dow?
posted 5 months ago by John Hayes from New Jersey
John,
The Dogs of the Dow screen, which is updated monthly, can be found at:
http://www.aaii.com/stock-screens/screendata/Dogs
-Charles
posted 5 months ago by Charles Rotblut from Illinois
