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Dividend Dogs of the Dow - Investment Strategy

Posted on | April 1, 2013 | Comments Off

There is a great system for picking Dividend Stocks that has historically done very well. It is called the Dogs of the Dow. What is this? It is an investment approach where at the beginning of each year you pick the top 10 Dow Stocks with the highest dividend yield.

The approach is roughly based on the belief that the major companies that are listed on the Dow do not really alter their dividends according to how they are always doing. Dow companies are generally believed to be very solid financially sound companies with good fundamentals. By picking the ones with the highest yield, it is believed that these companies are oversold and will inevitably bounce back on their current price and outperform the overall market.
You essentially pick the top 10 in this list each year and invest in these, thus selling your old positions if need be or wanted. Historically looking at the Dogs of the Dow and one will see it has done quit well. From 1992 to 2011 following this strategy has yielded 10.8% compared to the S&P 500 returns of 9.6%. From 1957 to 2003 this group of stocks outperformed the Dow by 3% and from 1973 to 1996 outperformed the market by nearly 5%.

Is it really just this easy? Essentially yes, this strategy just does this, nothing else and you sit on the stocks for 1 full year before replacing some or all of them depending on what the Dogs of the Dow are the following year. It is a pretty simplistic strategy with historically a good return. There have also been other alterations of this strategy including allocating more towards the top 3, 4 or 5 in this list. This does not mean that this group will always outperform the Dow or S&P 500. Some years it will lag behind the market but overall in the long term it has faired very well. This trading tactic is also based on the hopes that history will repeat itself. There is no saying it will. Always know the risks associated with putting your money anywhere in the market.

What I have considered looking at doing is adding even more variation to this approach. By picking the top 10 dividend stocks to invest in, then considering other factors such as technical analysis, possible news etc, it will help me to indicate what shares to weigh heavier than others. I also like to keep a bit of cash on hand to be able to top up no stocks if their price drops considerably from its January start. You could also try to incorporate things like using a dividend capture strategy. Or to buy the stocks before January, or to theorize any anniversary date you want. Other approaches are to use this same technique with the Nasdaq 100, S&P 500 etc.


These are the Dogs of the Dow for 2013

Company                           Symbol      Yield     Jan 2nd price      Year to Date and Price

1) AT&T                                 T          5.30%              $35.00             Click

2) Verizon                              VZ       4.8%                $44.27             Click

3) Intel                                   INTC   4.4%                $21.38             Click

4) Merck                                 MRK   4.2%                $41.34             Click

5) Pfizer                                  PFE     3.8%                $25.91             Click

6) Dupont                               DD      3.8%                $45.87             Click

7) Hewlett-Packard                 HPQ    3.7%                $15.02             Click

8) General Electric                GE       3.61%              $21.34             Click

9) McDonalds                         MCD   3.5%                $90.12             Click

10) Johnson & Johnson         JNJ      3.49%              $70.84             Click

Dow Jones Industrial Average                                   13,412.55        Click



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