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Dogs of the dow

Dogs of the Dow is an investing strategy that repeatedly buys and holds the 10 best-yielding dividend stocks of the Dow Jones Industrial Average.

Expanded Definition

Dogs of the Dow is an investing strategy that buys and holds equal dollar amounts of the 10 best-yielding dividend stocks of the Dow Jones Industrial Average on the theory that blue-chip stocks with high yields are near the bottom of their business cycle and should therefore substantially appreciate. Investors would benefit not only from the capital appreciation, but from the high dividends as well.

The classic strategy, which was popularized by Michael O'Higgins in his 1991 book, Beating the Dow, involves buying the 10 best-yielding Dow stocks, holding them for a year, selling them, and repeating the strategy by buying what are then the 10 best-yielding Dow stocks. There are several variations of this strategy, notably the Dow 5 and the Dow 4. Many publications track the classic version of the Dogs on a calendar-year basis.

The attraction of this strategy is its simplicity and ease: Investors don't have to do substantial research or know much about the companies involved to implement it, and it outperformed the Dow by about 3 percentage points a year between 1957 and 2003.

However, critics point out that the statistical proof that it works is mostly ephemeral; going further back in time or using portfolios not run on a calendar-year basis made most of the outperformance disappear.

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