Dogs of the Dow Investment Strategy
The Dogs of the Dow is a stock investing strategy popularized by Michael B. O’Higgins in his 1991 book, Beating the Dow. For more about the Dogs of the Dow (and Puppies of the Dow), I recommend reading his 2011 revised edition of the book. The 3 primary strategies in the book are Dogs of the Dow, Puppies of the Dow, and Penultimate Profit Prospect (PPP).
In this article, I briefly explain the 3 strategies. Then I present the results of each strategy for 2019.
Although I don’t currently use any of the Dogs of the Dow strategies, I think it’s a great way to screen for potentially undervalued stocks.
Strategy #1: Dogs of the Dow
The Dogs of the Dow are the 10 stocks in the Dow Jones Industrial Average (DJIA) with the highest dividend yield. This strategy is to buy equal amounts of the 10 Dogs of the Dow stocks the first trading day of the year. Each subsequent year, re-balance into equal amounts of that new year’s Dogs of the Dow stocks.
Strategy #2: Puppies of the Dow
Instead of buying the 10 Dogs. Buy the 5 lowest priced of them.
Strategy #3: Penultimate Profit Prospect (PPP)
Buy the second lowest-priced of the Dogs.
How did the 2020 Dogs of the Dow stocks perform?
|Symbol||Company||1/1/2020 adj. close||12/31/2020 adj. close||Total Return 2020|
|XOM||Exxon Mobil Corp||63.63||40.32||-36.63%|
|IBM||IBM Common Stock||125.57||121.34||-3.37%|
|VZ||Verizon Communications Inc.||56.62||56.28||-0.60%|
|WBA||Walgreens Boots Alliance Inc||55.57||38.64||-30.47%|
|CSCO||Cisco Systems Inc||46.12||43.5||-5.68%|
|Dogs of the Dow||-8.70%|
|Puppies of the Dow||-4.20%|
The Dogs returned -8.70%, the Puppies returned -4.20%, and the PPP returned -5.68%. 2020 was an abysmal year for the Dogs of the Dow strategies. The average performance of the DJIA and S&P 500 over the past 100 years is around 10%!
The DJIA scored 5.34% and the S&P 500 did 14.56% last year, so all 3 Dogs of the Dow strategies greatly underperformed the indices.
With 2020 behind us, it’s now time to look at the 2021 Dogs of the Dow.
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I/we own shares of stock in KO
I/we have been trading options in PFE
Except for Wolves of Investing, I/we are not receiving any compensation from and do not have any business dealings with any companies discussed in this article.
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Donnie Nguyen is the founder and CEO of Wolves of Investing. He started investing in the stock market in the early 2000s. He follows the teachings of Peter Lynch, Warren Buffett, and other investing legends. When he's not investing or blogging, he loves spending time with his family traveling and experiencing the world.
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