Running with the Dogs (of the Dow)

Running with the Dogs (of the Dow)

Recently we decided to invest money in a strategy known as Dogs of the Dow. This technique was first described in the book, Beating the Dow, written by Michael O’Higgins. The book was first published in 1990. Interestingly, not once did O’Higgins ever mention the term “Dogs of the Dow” in the book. However, since its publication, this investment strategy has gained popularity and hence, picked up its catchy title.

Using the Dogs of the Dow philosophy, you select the 10 stocks from the DJIA with the highest yield. From the total amount you have to invest, you invest an equal amount into each stock. At the same time the following year, you again select the 10 stocks from the DJIA with the highest yield and rebalance your portfolio, investing an equal amount into each of the selected 10 stocks. History has shown, that on average, 3 of the 10 stocks selected in any given year will drop out of the Dogs of the Dow the following year and be replaced with 3 other stocks.

According to O’Higgins in a recent interview on CNBC, the Dogs of the Dow have averaged a gain of 13% since 1972. And the Dogs have beaten the DJIA for the past 7 consecutive years. Not a bad track record during this prolonged bull market. Based on information from, since the turn-of-the-century, the Dogs have an average annual total return of 8.6%, compared to the average annual total return of the DJIA of 6.9%.

The Dogs of the Dow have averaged a gain of 13% since 1972. And the Dogs have beaten the DJIA for the past 7 consecutive years.

When we sold our rental house early this year, we were already thinking about ways to increase our income streams in preparation for FIRE and the Dogs of the Dow seemed to fit the bill.

We decided to sell the house because we became tired of being far-away landlords. Our renters were nice enough and had lived in the house for 5 years, but the maintenance hassles and the paperwork had become quite cumbersome. When we were notified by our renters of their plans to vacate, we took that as an opportunity to sell. We had tried to sell the house years earlier when we moved to Canada, but unfortunately, we would have incurred a huge loss. Even after renting the house for 5 years, we still sold the house for less than we paid for it, but we had significant rental income during those years which more than compensated for the loss on the house.

Armed with over $300K in equity from the house sale, we researched the best way to invest the proceeds, given our primary goal of increasing our streams of income. Enter the Dogs of the Dow. For us, we would spend $99 to invest $30K in each of the 10 stocks recognized as this year’s Dogs of the Dow. We use an on-line trading platform which charges $9.99 per trade. We expect next year the transaction cost will be approximately $130 if 3 of the stocks drop out of the Dogs and we sell and/or buy the current 10 stocks to rebalance the portfolio. Our future transaction costs should be close to $130 per year. Not bad for a $300K (and hopefully) growing portfolio.

Our current portfolio of the 2017 Dogs of the Dow includes the following stocks. We started the year with $30K invested in each. The stocks are listed in decreasing order of current dividend yield:

  1. Verizon
  2. Pfizer
  3. Chevron
  4. Boeing
  5. Cisco Systems
  6. Coca-Cola
  7. International Business Machines
  8. ExxonMobil
  9. Caterpillar
  10. Merck

So how are we doing so far? Well, as I write this, our return (less dividends) is 9.38%. We’ve been invested for approximately 9 months, so 3 months to go until we rebalance. Due to the timing of our house sale, we actually purchased our stocks on January 27. The published returns of the Dogs of the Dow measure the yearly performance from January 1, so our results will vary slightly from the published performance. Our average yield is 3.68%, giving us a total YTD return of approximately 13.06%. Currently we reinvest all dividends, but when my husband retires, we look forward to receiving monthly dividend checks in the mail (or via on-line deposit, of course).

We’re very pleased with our results so far. Of course, everyone invested anywhere in the market since the beginning of the year is pleased with their results so far.

However, we do have one confession to make.

In early August, one of the stocks of the Dogs of the Dow had returned over 50%. Way to go Boeing! And so, we got a little antsy and decided to lock in some profits. We sold approximately $10k of our Boeing stock. Looking back, we should have just left it in the market, as Boeing has continued to soar. We’re also missing out on the dividends that would have come from that $10K investment. Lesson learned.

What do you think? Was this a good investment choice? Have you tried the Dogs of the Dow and what have been your results?

And that puppy in the photo, that’s our beloved goldendoodle. Pretty cute, huh?

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3 thoughts on “Running with the Dogs (of the Dow)”

  • I’m not sure where you are getting your information, but great topic. I needs to spend some time learning more or understanding more. Thanks for great information I was looking for this information for my mission.

    • Yes, the housing crash in the US was painful to watch and more painful to participate in. We were very fortunate that we were able to sell the house. A lot of people weren’t so lucky.

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