Dogs of the Dow strategy

The Dogs of Dow strategy pursues the principle of achieving better results than the overall market, which is represented by the corresponding index, by selecting stocks according to the level of their dividend yield. 

Although the term "Dogs of Dow" from the US colloquial language tends to indicate something inferior (dogs of the Dow Jones), the term has become established in stock market jargon for the highest-dividend stocks within the Dow Jones Index. 

Correspondingly, the highest-dividend shares within the DAX are sometimes referred to as Dogs of DAX and the highest-dividend shares within the EuroStoxx 50 as Dogs of Eurostoxx 50.

How is the Dogs of Dow strategy applied?

The investor buys the ten shares with the highest dividend yield from the shares contained in an index on a certain annual cut-off date. The purchased shares are held for twelve months until the next cut-off date without the slightest reaction to stock market events.

With the changes on the next cut-off date, the portfolio is restructured. All shares that are no longer among the ten with the highest dividend yield are sold. The proceeds from the sale can now be used to buy those shares that have newly moved up into the group of the ten shares with the highest dividend yield. The reallocation is repeated annually on the target date.

Successes of the Dogs of Dow Strategy 

In the past, it was often possible to achieve better results with the Dogs of Dow strategy than with an investment in https://sg-exness.com/personal-area/ that was based entirely on the respective overall market or index. When applying longer investment horizons, an outperformance of the strategy compared to the respective index can be proven in almost every respect. However, this should not be regarded as a guarantee of success. 

The primary goal of the Dogs of Dow strategy is to generate a better performance than the index serving as a basis. In practice, this means: If a portfolio built according to the Dogs of the Dow strategy loses less than the overall market, this negative result for the investor is considered a success.

In addition, the Dogs of the Dow strategy has only been able to prove its superiority over the indices in the past when applied over a long period of time. For shorter investment horizons, this cannot be shown so clearly.

Critical voices on the Dog of Dow

The advantages of the Dogs of Dow strategy could only be empirically proven over longer investment periods. The causal reason why the strategy has led to success in the past has not yet been established. 

Since this connection is not apparent, it is difficult to answer the question of whether an outperformance of the Dogs of Dow strategy is also possible in the future. A strategy whose success cannot be planned in any way is at least partially questioned at this point.