The Dogs of the Dow
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The Dogs of the Dow is an investment strategy popularized by Michael 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.
Proponent 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. Of course, several assumptions are made in this argument. The first assumption is that the dividend price reflects the company size rather than the company business model. The second is that companies have a natural, repeating cycle in which good performances are predicted by bad ones.
[edit] Bibliography
- Michael O'Higgins and John Downes (2000) Beating the Dow (Revised and Updated). Collins, ISBN 0-06-662047-3
[edit] External links
- Recent Dogs of the Dow Performance
- Dogs of the Dow and the 'Foolish Four'
- 'Dogs of The Eurostoxx 50, same strategy, European stocks'
- [1] Why the Dogs of the Dow and similar strategies are just data dredging.
- Investment Strategies: Dogs of the Dow. / Alternative Stock Library
