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Dogs of the Dow is a strategy that buys the 10 Dow Jones Industrial Average (DJIA) stocks with the highest dividend yield at the beginning of the year. The portfolio is adjusted at the beginning of each year to include the 10 highest yielding stocks. Michael O’ Higgins first popularized the strategy in his book, "Beating the Dow," published in 1991. O’Higgins showed that over the 17-year period from 1973 to 1989, his Dogs strategy averaged a return of 17.9% annually, compared to 11.1% for the Dow. You can find the top ten highest yielding stocks in dogsofthedow.com. There are variations to Dogs of the Dow, like only select five companies with the lowest stock price from the 10 highest yielding stocks (the Dogs). This strategy is called Small Dogs of the Dow. However, I think that selecting based on price is a not a good strategy, because low price does not mean that they are undervalued, although low price means more liquid. I prefer using P/E and PEG for the top 10 highest yielding stocks (I haven’t tested this strategy). You can create your own strategy by choosing not only the 10 highest yielding stocks, but maybe top 20, or top 30. Then select using P/E or PEG or even price from that list. You can check the result using historical data. Do your homework and you will be rewarded.
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