The Dogs of the Dow strategy is something I’ve written about in the past. As we roll further into 2018, lest take a look at how the strategy worked out in 2017 and also see who is on the list for 2018.

As a reminder:

“The Dogs of the Dow is an investing strategy that consists of buying the 10 DJIA stocks with the highest dividend yield at the beginning of the year. The portfolio should be adjusted at the beginning of each year to include the 10 highest yielding stocks.” – Investopedia

The Dogs of the Dow theory was created in 1972 and has proven to be successful more often than not over the years. Sometimes the simple things work the best and this strategy is simplicity to the core. Purely stated, the Dogs of the Dow theory involves buying the 10 highest yielding stocks of the 30 companies in the Dow Jones Industrial Average at the start of each year. The portfolio is then rebalanced at the start of the following year.

The thesis of the trade is that these 10 stocks are quality companies with stable business and healthy, consistent dividend payment. They are temporarily unloved or have experience short-term declines due to various market factors but are likely to bounce back at some point soon.

Companies in the Dow have historically been very stable companies that have been able to weather economic storms. It is unlikely they are going to go out of business any time soon.

Does It Work?

As with any investment strategy, you cannot say in advance that this will work 100% of the time. However, over the long run, the strategy has proven to be a good one. According to Investopedia, between 1957 and 2003, the Dogs outperformed the Dow Industrials by about 3% returning 14.3% annually versus the Dow’s 11%. From 1973 to 1996, the outperformance was even more impressive returning 20.3% annually versus 15.8%.

The following returns were reported by

2017 Dogs of the Dow performance

The 2017 Dogs of the Dow strategy performed very well with BA and CAT achieving phenomenal returns of 89.43% and 69.92% respectively.

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