Understanding: What Are Dogs of the Dow?

Aug 08, 2022 By Triston Martin


What Are Dogs of the Dow? The top ten dividend-paying firms of the Dow Jones Industrial Average (DJIA) are used in The Dogs of the Dow, a stock-picking strategy. This long-term investment plan is called the Dogs of the Dow strategy. According to the plan, investors are advised to select 10 of the Dow Jones Industrial Average's listed firms each year whose yield, or yield on dividends, is the most significant proportion of their value. Other analyses suggest that these investments could be categorized as "dogs" or unfavorable because corporations frequently raise their payouts in response to negative news or a decline in stock prices.

However, the Dogs of the Dow method argues that these stocks could be a good candidate for substantial increases in their stock price and significant dividend distributions; thus, they are not regarded as "dogs." Independent studies have found inconsistent findings. Although some research demonstrates contradictory or insufficient outcomes from the methodology, its use in global marketplaces has been proven. Dow technique dogs may improve long-term results.

Understanding Dogs of the Dow

Since the Dow is one of the most durable and generally followed indices in the world and is seen as a leading indicator for the bigger market, it is common for market experts to base their investment strategies on specific DJIA components. The main benefit of following the Dogs is that it offers straightforward calculations that function similarly to the Dow.

The proponents of the "Dogs of the Dow" strategy contend that because blue-chip companies, which make up the Dow Jones Industrial Average, have access to things like their well-established brands and business models, access to credit markets, the ability to hire top management as well as the capacity to acquire dynamic businesses, among other things, they are more resilient to economic and market downturns and maintain their high dividend yields. The high dividend often follows a significant decline in the stock price, and a high dividend compared to the stock price of blue-chip businesses signals that the company may be a good deal with the potential for both the stock price and dividend payout to increase.

In line with this strategy, investors buy an equal number of 10 firm shares. The investor then makes investments in capital gains or dividends, which could ultimately lead to more significant results. According to the data in Dogs of the Dow, this has been the case since the turn of the century. The justification is that a higher dividend yield suggests that the stock is overpriced (or underpriced). Management is confident in the company's future and willing to back that optimism with a substantial dividend. Therefore, in addition to receiving a rather significant quarterly dividend that may be reinvested in purchasing further shares, investors can benefit from above-average stock price growth.

How Do the "Dogs of the Dow" Approach Operate?

The year 1991 saw the release of Michael B. O'Higgins' book "Beating the Dow," which helped to popularise The Dogs of the Dow. The term "dog" describes equities that have fallen out of favor. It is the best course of action to focus on dog stocks, which are thought to be in the middle of their economic cycles and likely to recover. The Dogs of the Dow method consists of building a portfolio out of the ten Dow Jones Industrial Average stocks with the highest dividend yields and rebalancing it annually to obtain the desired results. The media frequently covers this tactic between January and December yearly because it is still in use.

Using the Dow Strategy's "Dogs"

The Dogs of the Dow approach is employed in the following situations:

  • Step 1. Divide the funds in your portfolio evenly at the start of the year among the top ten dividend-paying Dow stocks. The investor will keep the positions open till the year's conclusion. For instance, a shareholder with a $10,000 account in 2019 may donate $1,000 to each of the top ten dividend-paying stocks.
  • Step 2. The top ten Dow stocks with the highest dividend yields can be recalculated yearly. For instance, investors can review the top 10 dividend-yielding stocks at the end of 2019.
  • Step 3. Sell whatever assets you have and reinvest the proceeds in the most recent top ten dividend-paying stocks found in Step 2 to rebalance your position. The investor will sell his holdings and distribute $100 to the top ten dividend-paying firms listed on the Dow if, for example, the portfolio contains $15,000.

"Dogs of the Dow" Could Win Best in Show

Dogs of the Dow for any given year are typically down from the previous year, on average. This is due to the rising dividend yield, defined as the dividend divided by the stock price. While some proponents of the Dogs of the Dow theory advise investing in the top five yield-oriented firms, others are more willing to do so in the bottom ten. As long as the dividends stay the same over the following twelve months, investors who purchase the dogs would anticipate that these high yields will decline because it would suggest that the share prices have increased.


The Dogs of the Dow is a well-known trading method initially introduced in 1991. By making annual investments in the top paying dividend stocks from the DJIA, the method aims to maximize returns on investments. According to its performance history, the approach beat the index over the years following the financial crisis.

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