Coach G explains an investing strategy that consists of buying the 10 DJIA stocks with the highest dividend yield at the beginning of the year. The portfolio should be adjusted at the beginning of each year to include the 10 highest yielding stocks.
In 9 of the last 14 years, the “Dogs” have beaten the Dow by an average of about 1 percent. In 2014, the index is heading toward year-end with an 11 percent total return, while the Dogs are up 12 percent.
O’Higgins and others back-tested the strategy as far back as the 1920s and found that investing in the Dogs consistently outperformed the market as a whole. Since that time, the data shows that the Dogs of the Dow as well as the popular variant, the Small Dogs of the Dow, have performed well. For example, for the 20 years from 1992 to 2011, the Dogs of the Dow matched the average annual total return of the Dow (10.8%) and outperformed the S&P 500 (9.6%). The Small Dogs of the Dow, which are the five lowest priced Dogs of the Dow, outperformed both the Dow and S&P 500 with an average annual total return of 12.6%. When each individual year is reviewed it is clear that both the Dogs of the Dow and Small Dogs of the Dow did not outperform each and every year. In fact, the Dogs of the Dow and Small Dogs of the Dow struggled to keep up with the Dow during latter stages of the dot-com boom (1998 and 1999) as well as during the financial crisis (2007-2009). This suggests that an investor would be best served by viewing this as a longer-term strategy by giving this portfolio of stocks time to recover in case of a rare but extreme economic event (e.g., dot-com boom, financial crisis). While most any investor can back test an investment system that performed well over the recent past (data mining), what is unique about the Dogs of the Dow in this regard is that it has been forward tested for over two decades which included multiple booms and busts.
HERE THEY ARE: The 2015 Dogs of the Do list
Company & Yield
AT&T Inc. (NYSE:T)
Verizon Communications Inc. (NYSE:VZ)
Chevron Corporation (NYSE:CVX)
McDonald’s Corporation (NYSE:MCD)
Pfizer Inc. (NYSE:PFE)
General Electric Company (NYSE:GE)
Merck & Co., Inc. (NYSE:MRK)
Caterpillar Inc. (NYSE:CAT)
Exxon Mobil Corporation (NYSE:XOM)
The Coca-Cola Co (NYSE:KO)
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