How to Analyze Dogs of the Dow Stocks for Investing
The Dogs of the Dow strategy buys, at the start of each year, equal dollar amounts of the 10 stocks in the Dow Jones Industrial Average with the highest dividend yields, holds them for one year, and then repeats the selection. The idea is that a high yield on a large, established company often reflects a temporarily low share price. Michael O'Higgins popularized the approach in his 1991 book Beating the Dow. It does not guarantee better returns than the index; results vary from year to year.
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What is the Dogs of the Dow strategy?
The Dogs of the Dow is a rules-based value strategy that uses dividend yield to pick stocks from the 30-stock Dow Jones Industrial Average. Because it only uses Dow components, every candidate is a large US company, and the annual rebalance keeps the portfolio tied to whichever members currently have the highest yields.
How to select the Dogs of the Dow stocks
- List the 30 current Dow components.
- Calculate each stock's dividend yield (annual dividend divided by share price) at the end of the year.
- Rank by yield and take the top 10.
- Invest an equal dollar amount in each and hold for one year.
- Repeat the ranking each year and rebalance.
How to review the Dogs before investing
A high yield can signal a bargain or a company in trouble, so review each pick before buying:
- Dividend safety: check the payout ratio and cash flow coverage; a very high yield can come before a dividend cut.
- Financials: look at revenue and earnings trends, debt levels and margins.
- Business outlook: consider competition, industry trends and management.
- Macro conditions: interest rates and economic cycles affect high-yield stocks.
Using MarketXLS to analyze Dogs of the Dow stocks
MarketXLS is an Excel add-in that returns stock data through formulas, so you can build the Dogs of the Dow list in a spreadsheet. List the 30 Dow tickers, add =DividendYield("KO") to rank them, then add =PayoutRatio("KO"), =PERatio("KO") and =DividendPerShare("KO") to review each of the top 10. Sort by yield once a year to rebalance.
Conclusion
The Dogs of the Dow is a simple annual rule: buy the 10 highest-yielding Dow stocks in equal amounts and rebalance each year. Review dividend safety and financials before buying, since a high yield can reflect real problems. This article is educational and not investment advice.
Browse MarketXLS templates for dividend and screening models.
