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 Dogs of the Dow theory, used as an investment strategy, was first popularized by Michael O'Higgins in his book Beating the Dow, which was published back in 1992. The theory is based on the purchase of stocks from the Dow Jones Industrial Average with the highest dividend yield.
This concept is a great follow up to our article on dividend paying stocks, where we explain why certain companies pay higher dividends than others. The term "dogs" refers to the fact that these companies have somehow fallen out of favor with the investment community.
Dogs of the Dow Theory
The Dogs of the Dow Theory is really quite simple. The Dow Jones Industrials is a prestigious list of companies to begin with. By sorting these stocks to find the ten companies with the highest dividend yield, you are automatically choosing companies that are undervalued relative to their peers. By refreshing the list each year, you're always picking new "dogs" - the ones that stand the greatest chance of catching up with their peers.
O'Higgins examined the performance of these puppies by looking at the performance of these sets of stocks over a 17 year time period. He compared the performance of a portfolio of ten stocks with that of the rest of the Industrials Index. He found that the average annual return for the Dogs of the Dow was 17.9% compared to 11.1% for the rest of the Dow.
So to summarize, in this theory we have a combination of large cap stocks, paying high dividend yields that seem to be undervalued relative to their peers.
Choosing the Dogs of the Dow
The way the process is supposed to work is that each year a new portfolio of stocks is chosen using the closing price on the last day of trading for the previous year. Some of the stocks might remain the same; some companies will be replaced by new dogs.
When you purchase this portfolio of stocks, you're supposed to allocate 10% of your investment dollars to each stock. This means you will hold a different number of shares for each company since the stock price will be different for each company.
Fortunately, several mutual funds companies have responded to the popularity of this investment strategy and you can purchase mutual funds that follow the Dogs of the Dow Theory.
Recent Performance of the Dogs
In recent years, the performance of these canines have not faired quite as well as the time period examine by O'Higgins (1973 - 1989). For example, they've only beaten the S&P 500 index once in the last five years. In the same manner, the dogs have been outpaced by the Dow Jones Industrial Average in three out of the last five years. Below is a table demonstrating the relative performance of this group from 2000 - 2007.
Historical Performance - Dogs of the Dow
| Performance |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
| Dogs |
6.4% |
-4.9% |
-8.9% |
28.7% |
4.4% |
-5.1% |
30.3% |
-1.4% |
| DJIA |
-4.7% |
-5.4% |
-15.0% |
28.3% |
5.3% |
1.7% |
19.1% |
6.4% |
| S&P 500 |
-9.2% |
-11.9% |
-22.1% |
28.7% |
10.9% |
4.9% |
15.8% |
3.5% |
That being said, 2007 was another poor year for this group - with the Dogs of the Dow being outpacing the DJIA by around 8% and the S&P 500 by nearly 5%.
Dogs of the Dow Stocks
Now that you understand what the theory is all about and we've given you some information on relative performance, now's the time to share with you what you're probably looking for - the Dogs of the Dow for 2008. Remember, this list is based on closing performance for 2007 - but if you want to get in on this game, we're going to give you the ten companies you need to invest in for 2008.
We've been publishing this list for several years now, so for your reference, we've also included the Dogs of the Dow for 2007, 2006, and 2005.
Dogs of the Dow 2008
| Stock Symbol |
Company Name |
2007 Close |
Dividend Yield |
| C |
Citigroup, Inc. |
$29.44 |
7.34% |
| PFE |
Pfizer, Inc. |
$22.73 |
5.63% |
| GM |
General Motors |
$24.89 |
4.02% |
| MO |
Altria Group |
$75.58 |
3.97% |
| VZ |
Verizon Communications, Inc. |
$43.69 |
3.94% |
| T |
AT&T, Inc. |
$41.56 |
3.85% |
| DD |
Du Pont De Nemours |
$44.09 |
3.72% |
| JPM |
JPMorgan Chase & Co |
$43.65 |
3.48% |
| GE |
General Electric |
$37.07 |
3.35% |
| HD |
Home Depot, Inc. |
$26.94 |
3.34% |
Dogs of the Dow 2007
| Stock Symbol |
Company Name |
2006 Close |
Dividend Yield |
| PFE |
Pfizer Inc. |
$25.90 |
4.44% |
| VZ |
Verizon Communications Inc. |
$37.24 |
4.36% |
| T |
AT&T Inc. |
$35.75 |
4.01% |
| MO |
Altria Group |
$85.82 |
4.01% |
| MRK |
Merck and Co. Inc. |
$43.60 |
3.51% |
| C |
Citigroup Inc. |
$55.70 |
3.48% |
| GM |
General Motors |
$30.72 |
3.27% |
| DD |
Du Pont De Nemours |
$48.71 |
3.01% |
| GE |
General Electric |
$37.21 |
2.96% |
| JPM |
JPMorgan Chase & Co. |
$48.30 |
2.78% |
Dogs of the Dow 2006
| Stock Symbol |
Company Name |
2005 Close |
Dividend Yield |
| GM |
General Motors |
$19.42 |
10.5% |
| VZ |
Verizon Communications Inc. |
$30.12 |
5.4% |
| MRK |
Merck and Co. |
$31.81 |
4.7% |
| MO |
Altria Group |
$74.72 |
4.3% |
| PFE |
Pfizer Inc. |
$23.32 |
4.1% |
| C |
Citigroup |
$48.53 |
3.6% |
| JPM |
JP Morgan Chase |
$39.69 |
3.4% |
| DD |
DuPont |
$42.50 |
3.4% |
| KO |
Coca-Cola |
$40.31 |
2.8% |
| GE |
General Electric |
$35.05 |
2.8% |
Dogs of the Dow 2005
| Stock Symbol |
Company Name |
2004 Close |
Dividend Yield |
| SBC |
SBC Communications |
$25.77 |
5.01% |
| GM |
General Motors |
$40.06 |
4.99% |
| MO |
Altria |
$61.10 |
4.78% |
| MRK |
Merck |
$32.14 |
4.73% |
| VZ |
Verizon Communications Inc. |
$40.51 |
3.80% |
| JPM |
JP Morgan Chase |
$39.01 |
3.49% |
| C |
Citigroup |
$48.18 |
3.32% |
| DD |
DuPont |
$49.05 |
2.85% |
| PFE |
Pfizer |
$26.89 |
2.41% |
| GE |
General Electric |
$36.50 |
2.40% |
Updated Dogs
Each year we publish a new set of Dogs for the coming year. To date we've published:
And very shortly we'll be publishing the Dogs of the Dow 2008.
About the Author - Dogs of the Dow
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