At the beginning of a new trading year is a good time to look back at Dogs of the Dow - one of the more popular mechanical investing techniques.
The Dogs of the Dow are the top 10 stocks with the highest dividend yield of the 30 that make up the Dow Jones Industrial Average.
The Dogs of the Dow is a mechanical way of picking stocks based on the dividend yield of the 30 stocks in the Dow. Each year the investor buys an equal dollar amount of the 10 stocks with the highest dividend yield.
One year later, the investor rebalances the portfolio and sells any stock that no longer falls in the top 10 of the Dow in terms of dividend yield and replaces it with any new additions.
Dogs of the Dow Article
My article Dogs of the Dow explains the process in detail.A stock makes the Dog list by falling in the top 10 highest dividend yields. You calculate Dividend yield by dividing the dividend by the current stock price. A high dividend yield indicates a low stock price.
The theory, in part, is that the market has under priced these stocks and they are due for a move up. This becomes somewhat of a self-fulfilling prophesy as investors and some funds add the dogs to their portfolios and bid the price up.
Real Life Dogs
How does the Dogs of the Dow work in real life? For most of the past 20 years, it has consistently outperformed the Dow and S&P 500. However, it is not foolproof.For 2007, the Dogs of the Dow brought home about a 3 percent return, while the Dow came in up 6.4 percent.
However, if you are looking for a painless and effortless way to invest, the Dogs of the Dow is a system that has outperformed the Dow for many years.
