Dogs of the Dow Screen
|Dogs of the Dow||S&P 500|
|Five Year Return:||11.2%||11.9%|
|Ten Year Return:||3.7%||5.6%|
Can a stock selection process that is simple and mechanical actually beat the market?
That's the appealing belief underlying the Dogs of the Dow approach.
The "dogs" are the stocks within the 30 Dow industrial average that have the highest dividend yields (dividends divided by share price). The approach calls for equal investment in the highest-yielding stocks, with a total revamping of the portfolio once a year.
In theory, the approach takes advantage of the long-term positive returns associated with the market as defined by the Dow Jones industrial average, and adds a bonus by its selection of only the highest-yielding stocks. Higher-yielding stocks are often temporarily out-of-favor issues that are possibly underpriced. In addition to greater price appreciation potential, investors should benefit from higher dividend payments.
The purely mechanical nature of the approach also forces strict investor discipline, and requires no investment decision-making expertise-a highly appealing strategy to many individual investors, particularly market newcomers.
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