My Dogs of the Dow

I like this approach in this market and going to tweak this with option writes.  I decided to drag out a popular investment idea, Dogs of the Dow, and take a new look at it based on my belief that the dividend yield on stocks will play a more significant role than in past years and the stability provided by big multinational companies with easy access to financing may provide some shelter from the storm.

Wikipedia says that The Dogs of the Dow is an investment strategy popularized by Michael B. O’Higgins, in 1991 which proposes that an investor annually select for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price.

Proponents of the Dogs of the Dow strategy argue that blue chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company; the stock price, in contrast, fluctuates through the business cycle. This should mean that companies with a high yield, with high dividend relative to price, are near the bottom of their business cycle and are likely to see their stock price increase faster than low yield companies. Under this model, an investor annually reinvesting in high-yield companies should out-perform the overall market.

I’ve modified it slightly because I wanted to get an integrated oil company in the list, Chevron, and in order to do this, I needed to add thirteen stocks not 10.  It’s also the 13th of September and the S&P 500 is down 6.74% YTD on price and -5.4% including dividend yields.  The average yield for the S&P 500 is 2.12%.  My Dogs of the Dow, all thirteen, have an average yield of 4.2%, nearly twice what the average yields.  My best guess is that you could do a lot worse than following this simple technique.