Higher returns than the Dow Jones? Those are them "Dogs of the Dow"

• Stock market bestseller “Beating the Dow”
• Focus on dividend yields
• Patience required

“Dogs of the Dow” strategy goes back to Michael B. O’Higgins

In 1991, the investment manager Michael B. O’Higgins presented a strategy for the first time in his book “Beating the Dow” with which investors should outperform the large US stock index Dow Jones. Since then, the guide has appeared in several revised and updated editions. According to the author, the bestseller is aimed at all investors, regardless of how much money they can put into the market. An important aspect of the approach presented in the book is also the “Dogs of the Dow” strategy.

Contrary to what might be expected, the “Dogs of the Dow” do not actually refer to dogs. Instead, it’s a slang term for flop investing. The Cambridge Dictionary defines the supposed dogs as “an investment, company or product that is likely to fail”.

Top-yielding Dow stocks at a glance

The original strategy is to identify at the beginning of each year the ten stocks from the Dow Jones that are delivering the highest dividend yields at the close of trading on the last trading day of the previous year. Although these are not stock flops, compared to speculative investments, the “Dog” stocks are significantly less risky. In the first phase, investors should then get these ten values ​​​​in equal shares in the portfolio. And then it’s just a matter of waiting. The shares should not be touched for twelve months. This means that any reaction to company news such as balance sheets is taboo.

At the end of the first year, it is checked whether the compilation is still up-to-date. If not, shares are exchanged or the corresponding shares are rebalanced.

These are the “Dogs of the Dow” in 2023

For the stock market year 2023, the “dogs” are the Dow Jones stocks Verizon, Dow, Intel, Walgreens Boots Alliance, 3M, IBM, Amgen, Cisco, Chevron and JPMorgan. At the end of the year, there were returns of between 2.98 percent and 6.62 percent.

Dogs often outperform the Dow – but not always

In the past, O’Higgins was largely right with his strategy, as reported by “WirtschaftsWoche”. The author calculated the ten highest-yielding Dow stocks back to the 1920s and was able to determine a significantly better overall return than the Dow Jones itself. And since the guide was first published, the theory has often been proven, as the asset manager Third Rock Investments proves on a website specially set up for this purpose. The “Dogs of the Dow” achieved a higher return than the Dow Jones between 2015 and 2017. Although the index performed better than the ten highest-yielding stocks again in 2018 and 2019, the overall index has been at a disadvantage since 2020, according to the investment company.

Strategy also applicable to DAX & Co

In addition, the strategy is no longer limited to the Dow Jones, but can also be applied to other indices, reports WirtschaftsWoche. It is only important that this is a standard value index. “Because of their sheer size and strength – let’s just call it staying power – blue chip companies tend to be survivors,” O’Higgins wrote in his book. “The old adage ‘the bigger you get, the harder you fall’ doesn’t apply when it comes to corporate giants. Blue chip stocks tend to be safer investments than other types of stocks.” This means that the strategy can also be applied to other US indices such as the S&P 500, but the procedure also applies to European indices such as the DAX or the EURO STOXX 50, according to the portal. However, investors who use the dog strategy should have a lot of stamina – regardless of which blue chip index they invest in.

Further modifications possible

There are now also variations on O’Higgins’ original approach. Third Rock Investments refers to the “Small Dogs of the Dow” or “Puppies of the Dow”, which usually even outperform the regular dog titles. Instead of selecting all ten Dow Jones stocks with the highest yields, only the five with the lowest stock prices go into the portfolio. The same amount of money should then also be invested in these five shares, after a year the reweighting takes place again.

Editorial office finanzen.net

This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.

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