The Dow Ten Strategy – One of the Simplest and Most Effective Investment Strategies
I spent over 20 years in the investment business working for some of the largest firms in the industry. One of the best strategies I ever implemented for my clients was The Dow Ten Strategy or The Dog’s of the Dow. The “Dogs of the Dow” strategy is one of the simplest for beating the market.
The Dogs strategy involves buying and holding equal dollar amounts of the 10 best-yielding dividend stocks of the Dow Jones Industrial Average (DJINDICES: ^DJI ) . The strategy banks on the idea that blue-chip stocks with high yields are near the bottom of their business cycle and should do much better going forward. Investors in the strategy then would get not only large dividends but also gains in the stocks underlying those dividends.
High-yield portfolios are often dismissed as inferior to their growth counterparts for various reasons:
- Many people fear that increasing dividend yields mean lower portfolio returns.
- Others believe that dividend payments mean that management believes the business is done growing.
Evidence from Tweedy, Browne refutes these falsehoods. Research shows that portfolios of high-yield dividend stocks outperform lower-yielding portfolios and the market in general. In fact, a study by noted finance professor Jeremy Siegel found that over 45 years, the highest-yielding 20% of S&P 500 stocks outperformed the S&P 500 by three times! The highest-yielding stocks turned a $1,000 investment in 1957 into $462,750 by 2002, compared with $130,768 if the same money was invested in the index.
After beating the Dow by 6.8% in 2011, the Dogs underperformed the Dow by 0.2% in 2012.
Check out the Dogs’ performance in 2013 so far:
|Company||Initial Yield||Initial Price||YTD Performance|
|Intel (NASDAQ: INTC )||4.36%||$20.62||17.84%|
|Johnson & Johnson (NYSE: JNJ )||3.48%||$70.10||26.68%|
|Dow Jones Industrial Average||13,104||17.17%|
|Dogs of the Dow||21.60%|
|Dogs Return vs. Dow (Percentage Points)||+4.43%|
Source: S&P Capital IQ as of April 18.
Historical Performance of the Dogs of the Dow:
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