I am not advocating that you invest solely in the Dogs of the Dow. If you want to do so, however, it is pretty darn easy. Simply wait until the end of each year, then select the ten stocks of the Dow 30 which have the highest yield. Invest an equal amount of dollars into each. That’s all there is to it. Next year do the same thing. Rinse and repeat every year.

There is a certain logic to using this strategy, if only for a portion of your portfolio. The Dow 30 tend to be big, solid companies that aren’t in any (immediate) danger of going out of business. Often the reason the yield on the Dogs is so high is not because their dividends have been increased but because they have disappointed investors or they just aren’t au courant so investors have abandoned them.

To everything, there is a season. If their dividend stays the same or only increases slightly but they are now out of favor their yield will effectively increase as their price declines.  But investor tastes are fickle; sooner or later they will return to a particular sector or industry and, voila!, bid those stocks back up again.  A recent example is the decline of energy stocks. As it happens, two of the ten Dogs for 2018 are Exxon Mobil (XOM) and Chevron (CVX). If they continue the roll they are on investor/owners will enjoy capital gains as well as very nice dividend income.

The Dogs of the Dow strategy is based upon my and most other serious analysts first rule about stock markets: reversion to the mean. That is to say, markets tend to return to the mean over time. The second rule, best elucidated by Bob Farrell many many years ago, is “Excesses in one direction will lead to an opposite excess in the other direction.” Who knows that Sir Isaac Newton was such a brilliant stock market observer?

If you are interested in pursuing this strategy, there is an excellent website devoted solely to the Dogs of the Dow (and the “Small Dogs of the Dow” and other variations. The Small Dogs of the Dow are the five lowest priced of the 10 Dogs of the Dow.) It is Dogs of the Dow. Here are a couple charts from their website to whet your appetite: