Dogs of the Dow一an Investment Strategy

Table 1.  Dogs of the Dow 2023 as of 05/31/2023 (credit: [2])

The Dogs of the Dow is an investment strategy that focuses on stocks that pay dividends. By investing evenly in the top 10 dividend-yielding stocks, the hope is that you'll eventually outperform the Dow Jones Industrial Average over the long term.^[2]

The Dogs of the Dow strategy is one where investors select the ten stocks that have the highest dividend yield from the stocks in the DoJones Industrial Index after the close of business on the last trading day of the year. 

Once the ten stocks are determined, an investor invests an equal dollar amount in each of the ten stocks and holds them for the entire next year. The popularity of the strategy is its singular focus on dividend yield.

This income/yield focus tends to lead to the Dow Dog strategy being a more value oriented one and the value style is out of favor in this year-to-date time frame (see Table 1).

Similar Investment Strategies

1. Dividend Aristocrats
• Companies that pay a growing dividend every year for at least 25 years (e.g. NOBL)
2. iShares Select Dividend ETF (DVY)
• DVY contains dividend payers that have paid a dividend for at least 5-years

One factor in common with these dividend paying strategies is their underweight in technology stocks and the growth-oriented communication services stocks.^[2] 

With the increased focus on A.I. or artificial intelligence related stocks, mostly falling in the technology and communication services sectors, an underweight in these areas is a recipe for underperformance, at least through May this year.

Warning

On 07/19/2023, Bloomberg reported that:^[3] 

A $500 billion corporate-debt storm is building over the global economy now that the era of easy money is over. 

• Big corporate bankruptcies are piling up at the second-fastest pace since 2008, eclipsed only by the early days of the pandemic.
• This time feels different than prior cycles, said Richard Cooper, a partner at law firm Cleary Gottlieb. “You’re going to see a lot of defaults.”
• The rising tide of distress is, of course, somewhat by design. But if it rises too high, that may prompt the first broad-based cycle of defaults since the GFC.

So, if you're looking for a good Dividend Investing Strategy, do look for quality companies only and do your own research first.

References

1. What Is the Dogs of the Dow Investment Strategy?
2. Dividend Payers Lagging Broader Market Badly
3. A $500 Billion Corporate-Debt Storm Builds Over Global Economy