Key Takeaways
– “Dogs of the Dow” is a rules‑based dividend strategy that selects the 10 Dow Jones Industrial Average (DJIA) components with the highest dividend yields on the last trading day of the year, then invests equal dollar amounts in each for one year.
– The method is simple, low‑maintenance and focuses on blue‑chip companies; its goal is to capture rebound potential when yields are high because prices have fallen.
– Historically the Dogs often track the DJIA’s performance closely; they have sometimes outperformed and sometimes underperformed (e.g., worse in 2008; modestly behind the DJIA over 2013–2023).
– There is no single ETF that precisely replicates the classic Dogs of the Dow top‑10 rule, though dividend‑focused ETFs tied to the Dow exist (e.g., Invesco DJD) and other ETFs follow “dividend dogs” style rules.
Understanding Dogs of the Dow
The Dogs of the Dow is a value/dividend strategy aimed at producing market‑matching or superior returns using a very simple, repeatable rule:
– Universe: the 30 blue‑chip stocks that make up the Dow Jones Industrial Average (DJIA).
– Selection metric: dividend yield (annual dividend per share ÷ share price).
– Rule: at year‑end, pick the 10 DJIA stocks with the highest dividend yields and invest equal dollar amounts in each on the first trading day of the next year. Hold for 12 months, then repeat.
Rationale
– Dividend yields rise when prices fall (yield = dividend ÷ price); a high yield can signal an undervalued blue‑chip company or a temporarily depressed share price.
– Because many Dow constituents are mature companies with stable dividend policies, proponents argue dividends are a better indicator of underlying business value than short‑term price swings.
– The approach tries to capture rebound returns as the market re‑values these beaten down/high‑yield names.
Dogs of the Dow Methodology (step‑by‑step)
1. On the last trading day of the year, obtain the list of the 30 DJIA components and their trailing‑twelve‑month (TTM) dividend payments and current closing prices.
2. Compute dividend yield for each stock = (TTM dividend per share) ÷ (closing price).
3. Rank the 30 stocks by yield (highest to lowest).
4. Select the top 10 highest‑yielding stocks — these are the “Dogs of the Dow” for the coming year.
5. On the first trading day of the new calendar year, invest equal dollar amounts in each of the 10 stocks (i.e., 10% of the Dogs allocation to each stock).
6. Hold for one year. Collect dividends as paid (optionally reinvest).
7. Repeat the selection process at the end of each year and rebalance on the first trading day of the next year.
How the Dogs of the Dow Strategy Works in Practice
– Portfolio construction: The investable portion dedicated to the Dogs can be your entire equity allocation or a portion of it. Within the Dogs allocation, each of the 10 stocks is equally weighted (not market‑cap weighted).
– Rebalancing: Annual only—sell holdings that no longer make the top‑10 and buy the new selections on the first trading day of the year.
– Dividends: You can take dividends as income or enroll in a dividend reinvestment plan (DRIP) to compound returns.
– Transactions & taxes: Because trades happen once per year, turnover and trading costs are low. However, dividends are generally taxable in the year received (except in tax‑advantaged accounts).
Sample Implementation (practical example)
– Suppose you want to allocate $50,000 to the Dogs strategy.
– On Dec 31, you calculate the yields and pick the top 10 stocks.
– On Jan 2, you invest $5,000 in each stock (equal dollar amounts).
– Track the portfolio for 12 months. If a stock pays a $1.00 per share dividend and you own 50 shares, you receive $50—decide whether to reinvest or keep as cash.
– On the following Dec 31, recompute yields for the DJIA and rebalance: sell the stocks that dropped out and allocate proceeds to the new top 10 to restore equal weighting.
Practical Steps To Implement Dogs of the Dow (checklist)
1. Decide capital to devote to the strategy and whether this is your whole equity sleeve or a portion.
2. Choose an account type (taxable brokerage, IRA, etc.). For taxable accounts, track dividends and consider qualified dividend tax status.
3. On the last trading day of the year:
– Pull the DJIA constituents and latest dividend data (company reports, financial sites, or a reputable screener).
– Calculate or obtain each stock’s dividend yield.
– Select the top‑10 yields.
4. On the first trading day of the year:
– Place market orders (or limit orders if you prefer) to buy equal dollar amounts of each of the 10 names.
– Consider fractional shares if your broker supports them — this facilitates exact equal dollar allocations.
5. Monitor periodically for corporate events that could significantly change dividend status (special dividends, suspensions, mergers).
6. After one year, repeat selection and rebalance.
7. Track performance relative to your benchmark (DJIA or another index) and revisit whether the strategy still fits your financial goals.
Performance — What History Shows
– The Dogs strategy has a long track record of producing returns close to the DJIA, sometimes higher and sometimes lower.
– It suffered larger losses than the DJIA during the 2008 financial crisis but recovered in later years.
– Reported trailing total returns (from Investopedia / S&P Dow Jones Indices):
– 2013–2023: Dogs of the Dow trailing total return ~10.02% vs DJIA ~11.48%.
– 2018–2023: Dogs ~5.29% vs DJIA ~8.39%.
– Interpretation: Over long periods the strategy can be competitive, but in growth‑led markets (where high‑growth, low‑dividend names lead) it may underperform.
Risks and Limitations
– Dividend can be a value trap: high yield may reflect an unsustainably low share price due to fundamental deterioration; dividends can be cut.
– Concentration: only 10 stocks, sector exposures can be skewed (e.g., financials, industrials in certain years).
– Timing & price: investing on a single day each year subjects you to market timing risk at that moment.
– Not tailored to growth investors: favors income and value, not high growth.
– Taxes: dividends (and capital gains when you rebalance) can create taxable events.
Variations and Related Approaches
– “Small Dogs of the Dow” or “Low‑Priced Dogs”: some versions pick the 10 highest‑yielding stocks and then buy the 5 with the lowest share price to get more shares for a dollar amount—this is a historical variation but not the classic method.
– “Dow Jones High Yield Select 10 Index”: S&P Dow Jones Indices publishes a related benchmark that formalizes a top‑10 high‑yield approach; consult index docs for exact rules.
– Use dividend ETFs: If you prefer not to pick stocks, consider ETFs with a Dow/dividend tilt (e.g., Invesco Dow Jones Industrial Average Dividend ETF — ticker DJD). These don’t replicate the exact Dogs rule but offer similar dividend focus and lower administrative burden.
Is There an ETF That Tracks the Dogs of the Dow?
– There is no ETF that exactly follows the classic Dogs of the Dow top‑10 equal‑weight rule. Some ETFs follow dividend strategies focused on Dow components or use “dividend dogs” concepts:
– Invesco Dow Jones Industrial Average Dividend ETF (DJD) — dividend‑oriented ETF tied to Dow components.
– ALPS International Sector Dividend Dogs ETF (IDOG) — follows a broader “dividend dogs” approach internationally (not the exact DJIA top‑10 rule).
– If you want an ETF with the exact Dogs rules, you would need a custom product or use an ETF that tracks a similar S&P/S&P Dow Jones index and verify its methodology.
What Companies Are in the Dogs of the Dow?
– The Dogs of the Dow roster changes annually based on year‑end yields. The specific 2023 list is published by Investopedia and also tracked on the official Dogs of the Dow website and other financial news sites.
– To find the current Dogs (or the list for any past year):
1. Check a current Dogs of the Dow page (Investopedia, Dogs of the Dow official site).
2. Or compute yields yourself using the DJIA constituent list and current dividend payments as of the last trading day of the year.
How Are the Dogs of the Dow Chosen?
– Simple rule: the 10 DJIA stocks with the highest dividend yields on the last trading day of the year are selected.
– Ties or corporate actions: if yields tie or a constituent changes (e.g., replaced in DJIA) there are common sense tie‑breaking rules and the investor must use the available data on the chosen date.
The Bottom Line
Dogs of the Dow is attractive for investors who want a straightforward, income‑focused, low‑turnover stock selection rule. It limits the investment universe to large, established companies and provides a mechanical way to capture high dividend yields with annual rebalancing. However, it is not a guaranteed outperformer and carries risks (dividend cuts, sector concentration, timing). It can be implemented manually or approximated via dividend‑tilted ETFs. As with any strategy, consider your goals, time horizon, tax situation and whether you prefer DIY stock selection or a passive ETF.
Practical considerations before using the strategy
– Use tax‑advantaged accounts (IRAs, 401(k)s) if possible to shelter dividend taxes.
– Use brokers that offer fractional shares to get exact equal weighting with smaller account sizes.
– Keep an emergency cash cushion; this is an equity strategy and can have multi‑year drawdowns.
– Consider blending Dogs with other strategies (e.g., a large‑cap growth sleeve or an S&P 500 index) to diversify style risk.
Related Reading / Sources
– Investopedia — Dogs of the Dow (source page you provided).
– S&P Dow Jones Indices — information on Dow Jones High Yield Select 10 Index and related indices.
– Invesco — Dow Jones Industrial Average Dividend ETF (DJD) fund page.
– ALPS — International Sector Dividend Dogs ETF (IDOG) fund page.
– Mohamad Ghouse, Siti Hajar Nadrah & Noryati Ahmad. “Conceptual Paper of the Trading Strategy: Dogs of the Dow Theory (DoD).” (2014).
If you’d like, I can:
– Walk through a concrete, dated example (with numbers) using the actual DJIA components and dividend data for a given year.
– Pull the current Dogs list for the most recent year and show how to construct trades (including sample orders and fractional‑share allocations).