There are countless investment strategies ranging from complex options tactics to simply buying an S&P 500 index fund. For investors seeking a “conservative-ish”, high dividend investment approach that’s likely to beat the S&P 500, the Dow Jones Industrial Average and is easy to implement, consider the “Dogs of the Dow” — small dog or puppies approach.
The Dogs of the Dow are the ten highest yielding Dow Jones stocks. Proponents of this approach recommend buying these 10 stocks at the beginning of each year and selling them at the end, then repeat the process. This investment strategy has beat both the Dow and the S&P 500 most years since 2000.
Between 2000 and 2016, the Dogs of the Dow returned 8.6% annually, while the S&P 500 garnered 6.2%. But if you tweak the approach, you’re likely to improve your returns even more.
What Are the Puppies of the Dow?
The Puppies of the Dow are a subset of five of the 10 Dogs of the Dow with the lowest prices. Historically, this group has performed better than a strict Dogs of the Dow investment strategy.
From 2000 through 2016, the Small Dogs of the Dow, earned a 10.45% annualized return. That’s more than 4% greater than the S&P 500’s annualized gain of 6.2% and approximately 2% above the 8.6% return of the standard Dogs of the Dow approach during that same period.
As is the case with all investment approaches, the returns don’t follow this pattern every single year. Between 2012 and 2016, both the Dogs and the Puppies of the Dow beat the S&P 500 each year. Yet, in 2016 the Dogs of the Dow beat the Small Dogs of the Dow. And last year, the S&P 500 returned 21.64%, while the Dogs of the Dow earned just 19%.
How to Implement the Puppies of the Dow Investment Approach
Implementing the Puppies of the Dow is simple. First, identify the highest yielding DOW stocks.
As of December 31, 2017, the ten top yielding Dow Stocks, ranked by yield were:
|NYSE / NASDAQ||The Dow stocks ranked by yield on 12/31/17||on 12/31/17||on 12/31/17||on 12/31/17|
|IBM||International Business Machines||153.42||3.91%||No|
|PG||Procter & Gamble||91.88||3.00%||No|
Now, winnow that list to the lowest priced Dogs of the Dow and you have the Small Dogs or Puppies of the Dow.
Puppies of the Dow
|NYSE / NASDAQ||The Lowest price -highest yielding Dow stocks ranked by yield on 12/31/17||on 12/31/17||on 12/31/17||on 12/31/17|
Next, you buy equal dollar amounts of each company stock, reinvest the dividends and wait until the end of the year. At that time, you sell the stocks that are no longer on the list and buy the five lowest priced stocks from the Dogs of the Dow list.
Since we’re already into 2018, you might consider searching for the Puppies of the Dow as of today, instead of those on Jan. 1. An easy way to uncover the current Puppies of the Dow is to download a list of the the current price and yield of the Dow Jones stocks. You can get this data on a variety of sites, including CNBC.com, then sort according to yield. Identify the top ten highest yielding stocks and choose the lowest-priced candidates. And, you have your current Puppies of the Dow list.
Like all investment approaches, there are no guarantees that investing in the Puppies of the Dow or the Dogs of the Dow will outperform the S&P 500 (or the Dow Jones) every year. Yet, if history is any guide, over the long-term, this deep value investment approach has paid off. That said, if you are more interested in investing in a pre-made Dogs or Puppies of the Dow portfolio, Motif offers pre-made portfolios that include both strategies. There are also many high-yield exchange-traded funds that strive to outperform the indexes.
As of this writing, Barbara Friedberg did not hold a position in any of the aforementioned securities.