Dogs Of The Dow Jones Industrial Average

Dogs Of The Dow

Dogs Of The Dow: what is this all about?

According to Investopedia the Dogs of the Dow theory can be summed up as

  • The Dogs of the Dow is a well-known strategy first published in 1991.

  • The strategy attempts to maximize the yield of investments by buying the highest-paying dividend stocks available from the DJIA.

  • The strategy’s track record shows that it beat the index during the 10-year stretch that followed the financial crisis.

Wikipedias Outlook On This Topic

The Dogs of the Dow is an investment strategy popularized by Michael B. O’Higgins in 1991 and the official Dogs of the Dow website[1], which proposes that an investor annually select for investment the ten Dow Jones Industrial Average (DJIA) stocks whose dividend is the highest fraction of their price. Under other analysis, these stocks would be considered “dogs”, or undesirable, but the Dogs of the Dow strategy proposes these same stocks have the potential for substantial increases in stock price plus relatively high dividend payouts.

Under this model, an investor annually reinvesting in high-yield, Dow companies has the potential to out-perform the overall market. The data from Dogs of the Dow[3] suggests that this has been the case since the turn of the century. The logic behind this is that a high-dividend yield suggests both that the stock is oversold and that management believes in its company’s prospects and is willing to back that up by paying out a relatively high dividend. Investors are thereby hoping to benefit from both above-average stock-price gains as well as a relatively high quarterly dividend. Wikipedia

Tactical Investor Dogs of the Dow Theory

The original idea was simple. After the stock market closes for the year, one should select 10 of the highest paying dividend stocks in the Dow Jones Industrials Average.  On the first trading day of the new year, one should then invest equal amounts of capital into these 10 stocks.  An investor should hold onto these stocks for the entire year and then repeat the process again.  However, we feel this process is flawed for just focusing on best-paying dividend stocks is not a great strategy in the era of hot money.  We have come up with the Tactical Investor Dogs of the Dow methodology.

The idea here is to invest equal amounts of capital only in the stocks that are trading in the extremely oversold ranges on the monthly charts. Note that monthly charts provide a very long term outlook of what is going and it takes a long time for a stock to move from the overbought ranges to the oversold ranges.

This strategy is vastly superior in terms of returns as it takes more work and more importantly you are putting the concept of Mass Psychology and Contrarian investing into play. One is focusing on stocks that have great potential but are disliked by the masses. History indicates that the masses are always on the wrong side of the markets.  Additionally, one does not need to hold the stocks for the year, you hold onto them until they trade into the overbought ranges and then you close the position out and find a new replacement.

An example of the Tactical Investor Dogs of the Dow Theory in Action

NKE NIKE, Inc. daily Stock Chart

Using our indicators, we would have purchased NKE in between Nov 2017 to Jan 2018. The price during that time frame ranged from 49 to roughly 60 dollars. let’s assume we got in at 55.00.  We would have held onto the stock until July 2018 and closed the position as at that point it was trading in the extremely overbought ranges. One could have closed the position out in the 82-85 ranges for a gain of  50%.  NKE continued to trend higher but we don’t chase a stock, the idea is to get in when no one is paying attention and the stock is trading in the extremely oversold ranges and close the position when it is trading in the extremely overbought ranges.

Tactical Investor 2019 Dogs of the Dow list

We are not going to provide the entire list as that is reserved for subscribers: its a bonus service we are offering to market update subscribers.    We are going to list four candidates


UNH UnitedHealth Group Incorporated daily Stock Chart

V Visa Inc. daily Stock Chart

CAT Caterpillar Inc. daily Stock Chart

MMM 3M Company daily Stock Chart

The idea is simple, purchase shares in all four companies but make sure you assign the same dollar amount to each company. Hold them until the stocks are trading in the extremely overbought ranges and then repeat the process again. We use proprietary indicators to determine overbought and oversold states, but several standard indicators should be able to help the average investor determine if the stock is oversold or trading in the extremely overbought ranges.

College Investor Concurs That The original strategy is not that great

Going back 20 years, the Dogs of the Dow rewarded investors with a return of 10.8%. Interestingly, the total Dow Jones Industrial Average rewarded investors with exactly the same return – 10.8% for the last 20 years.

Only one Dogs of the Dow variant has proven to beat the performance of the DJIA – the so-called “small Dogs of the Dow” strategy. The Small Dogs of the Dow requires that investors further concentrate their positions by investing in only 5 of the highest-yielding Dow components with the lowest stock price. The ordinary Dogs of the Dow strategy tells investors to purchase the 10 highest-yielding stocks regardless of the stock price.

The Small Dogs of the Dow returned 12.6% to investors in the last 20 years.

For comparison, $1,000 invested in the S&P500 index would have grown to $6,254. The same investment in the Dogs of the Dow as well as the whole Dow Jones Industrial Average would have grown to $7,776. Finally, the Small Dogs of the Dow would have turned $1,000 into $10,734 in the same 20 year period.  The College Investor

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