Dividend Investing 101 | Dividends Explained

The Dogs of The Dow for 2019 and Performance This Year

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Consistent, high returns are among the greatest values for any investor, yet there are so many competing strategies and advice that it can be difficult to determine which one is a suitable fit for your portfolio. If you are already dedicated to investing in dividends stocks, then there’s a strategy you really can’t afford to overlook: the Dogs of the Dow.

Although the strategy was first popularized all the way back in 1991, many of its tenets are still applicable to the investment practices of today. Here’s what you need to know before adapting your investment strategy to the Dogs of the Dow.

What Are the Dogs of the Dow?

This strategy is centered on blue-chip stocks, which are generally considered valuable long-term investments due to their historical stability and consistent dividend payouts for investors. The Dogs of the Dow strategy relies on the Dow Jones Industrial Average’s 10 highest dividend-yielding stocks, which can reportedly outperform market as a whole.

The core premise here is that the stock prices of companies with high dividend yields are more likely to increase quickly in comparison to low-yield companies because they’re near the bottom of the business cycle. You can figure out which companies presently offer high dividend yields by calculating the (dividend yield) price-earnings ratio (current market price of a share of stock, divided by the earnings per share of that company’s stock).

But why place so much emphasis on blue-chip stocks? The logic behind the Dogs of the Dow strategy is that blue-chip companies typically do not increase or decrease their dividend payouts based on current market conditions; instead, their stocks rise and fall in value throughout the usual business cycle (which, correspondingly, changes the dividend yield). The dividend growth of these stocks are generally slower growing but very solid.  This represents a comparatively safer strategy than many other investment strategies out there today.

Dogs of the Dow Strategy

The Dogs of the Dow strategy is relatively straightforward: invest equal amounts in 10 different blue-chip stocks in January and hold onto those stocks for the next 12 months. Of course, you don’t want to invest in just any blue-chip stock: you want to invest in the 10 stocks with the highest dividend yield inside the DJIA 30 holdings because historical analyses have shown that your portfolio is more likely to outperform the market average this way.

According to Wikipedia, this strategy has exceeded the average annual returns of the Dow Jones for several years. For instance, in 2016 alone, the Dow Jones Industrials average 16.5% returns, while the Dogs of the Dow strategy averaged 20.1% returns. Since 2000, the Dow Jones Industrials have averaged 6.9% returns, while the Dogs averaged 8.6% returns.

On January 1, 2019, the Dogs of the Dow include: IBM (5.5% dividend yield), Exxon Mobile (4.8%), Verizon (4.3%), Chevron (4.1%), Pfizer (3.3%), Coca-Cola (3.3%), J.P. Morgan & Chase (3.3%), Proctor & Gamble (3.1%), Cisco Systems (3.0%), and Merck & Co. (2.9%).

Dogs of the Dow 2019 Performance

Here is a list of the Dogs of the Dow 2019 performance YTD.  This is as of (updated – 3/11/19) and I’ll keep this updated weekly to track the Dogs performance.

Problems with the Dogs of the Dow Strategy

Of course, there’s never a guarantee the Dogs will outperform the Dow. This was designed to be a long-term investment strategy, which means you should expect some missed opportunities in one year or another. On a long enough time frame however, the Dogs of the Dow strategy seems to be holding its own against the Dow.

Another issue with this strategy is timing. A true Dogs of the Dow strategy mandates that you choose the highest-yielding dividend stocks on the last trading day of the year and hold those stocks until the last trading day of the next year (then rinse and repeat). If you’ve already missed the January 1 deadline for this year, then you can still partake in a Dogs of the Dow strategy by investing equal dollar amounts in the 10 highest dividend-yielding stocks and holding onto them until the end of December (then get back on track by investing in the new highest yielding stocks on January 1st next year).  However, you would not be abiding by the strict rules of the strategy.

Although blue-chip stocks are ideal for less aggressive investors who want to balance risk with rewards, there’s still a slight possibility that those high-yield dividends stocks are traps. On one hand, this means the dividend payout could be unsustainable over the long run. On the other hand, the Dogs of the Dow strategy is designed to be a long-term strategy for your portfolio, not necessarily a long-term investment in a particular stock that’s suddenly wavering in its dividend yields this year.

Should You Try the Dogs of the Dow Strategy?

There are plenty of other ways to invest for success when it comes to dividend investing, but the Dogs of the Dow history seems to suggest that it’s a solid formula for accruing consistent returns that are higher than the average Dow returns. It’s not a surefire method for success in the markets (nothing is guaranteed in investing, after all), but it’s certainly worth considering if you want to experiment with more proven investment strategies to grow your portfolio.  If nothing else, you can use this strategy to help identify which stocks might be solid performers for your dividend portfolio.

I'm a dividend growth investor who is aiming to retire early in 6 years at the age of 45. My goal is to live off the income my dividend portfolio and rental property produce exclusively and leave the corporate rat race. I hope you will join me in this journey!

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