The Dogs of the Dow -- A Stock Investment With More Income

by Ernesto R. Martin

If you'd like to generate more income from your stock investment, The Dogs of the Dow may be for you. The Dow Jones Industrial Average (DJIA), or simply "The Dow", is an index, reported daily in the news, which measures the value of 30 blue-chip stocks selected each year to be representative of the U.S. large-corporation stock market. The Dogs is an investment strategy optimizing towards DJIA stocks that pay high dividends relative to their stock price. In short, it looks for Dow stocks that pay high dividends and are cheap. They're often cheap because they are not in high demand, which is why they're called The Dogs. (It's noteworthy that the strategy, in addition to paying high dividends relative to price, sometimes beats the market, as it did over the period from 2008 to 2018, when a $10,000 investment became $21,420 for The Dogs vs $17,350 for the DJIA; see link below). The general concept is to allocate money to the 10 highest dividend-yielding stocks among the 30 components of the DJIA and re-balancing at the beginning of each calendar year. It sounds complicated but it isn't, partly because the strategy and the stocks that you need to buy are found on the Internet, including this site. For those wanting more income from their stocks, my recommendation is that they put some money in an S&P 500 index fund and some in the Dogs of the Dow.

A word of caution is that high-dividend stocks can't replace bonds in your portfolio. Bonds typically move in the opposite direction as stocks, so they provide stability to your portfolio, reducing volatility significantly. The dividends from the stocks on the Dogs of the Dow may provide income, but they're stocks, and they exhibit the volatility of stocks. In fact, some believe that dividends should not be considerd as income, but more like the financial equivalent of selling a portion of your stock portfolio, because had the dividends not been paid, the stock would have gone up. More on this here.