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Dogs of the Dow Strategy for 2016

January 5, 2016

By | 6 Comments

Coach G explains an investing strategy that consists of buying the 10 Dow Jones 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.
Since 2000 the Dogs have averaged a return of just over 8% annually.
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%.[1] 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).[2] 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 2016 Dogs of the Dow list
Company & Yield

Dogs 2016

Also, as a hedge trader I like to squeeze the most out of these dogs by selling OTM covered calls against them.

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6 Replies to “Dogs of the Dow Strategy for 2016”

  1. Thomas Hammonds Thomas Hammonds says:

    Good Stuff!!

  2. ASHISHVAIDYA ASHISHVAIDYA says:

    Thanks Gino. The investing strategy of investing in Dogs or Small Dogs for the year and selling covered calls against them looks like a good one for cash flow as well as growth. What I didnt understand here are the numbers; in the list the yield mentioned ranges from 3.09 to 4.89% for these stocks. How is annual average total return numbers of 10.8% and 12.6% calculated?

  3. Avatar Mario Gutierrez says:

    ASHISHVAIDYA, I believe the total return includes the price of the stock going up too.

  4. Hi Ashish,
    Its calculated as if buying the basket of stocks on Beginning of Jan and selling them on last day of year how much would your return be. Theory is they have dropped a lot and attractive yield brings in bottom fishers that want big companies.

  5. Avatar Paul Seward says:

    Like them puppies!

  6. Avatar martin krobot says:

    LUV it ….. thanks Gino

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