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The Lazy Man's Guide to Wealth

Posted January 5, 2021

It’s a new year, the fog is rising off the water here in Maryland, and thoughts turn to what to do with your money.

There are gold bugs and crypto bulls, contrarians and momentum traders. Some people hide their money in FANG stocks, while others are chasing the Green New Deal stocks. But today I’m here to tell you about a simple, worry-free investment strategy that requires about 10 minutes at the start of the new year.

It is called the Dogs of the Dow, and it has beaten the Dow Jones Industrial Average (DJIA) in the past five-, 10-, and 20-year periods.

What Are These Dogs?

The Dogs of the Dow is an investment strategy developed by Michael O’Higgins in 1991. Its method is simple. You take 10 of the Dow 30 stocks whose dividends are the highest percentage of their share price, divide your money equally, and invest in each one.

In the last decade, the Dogs returned an outstanding 17.7% annually compared with 14.5% returns from the Vanguard 500 Index or the 13% you would have gotten from Fidelity Magellan. Plus, no fees!

Small Dogs

This method and the more refined “Small Dogs of the Dow” have beaten the DJIA and the S&P 500 over time and in most years.  

The Small Dogs are comprised of the top five instead of the top 10 dividend-yielding stocks in the Dow Jones Industrial Average.  

Since 2000, the Dogs of the Dow have an average annual total return of 10.8%, while the Small Dogs of the Dow have done even better with an average annual total return of 12.5%. 

Both of these numbers are noticeably better than the Dow Jones Industrial Average at 8.4% and the S&P 500 at 7.7% over the past 20 years.

The thinking behind the Dogs of the Dow theory is that it puts you in undervalued stocks. They are blue chips, so it is unlikely that they are going bankrupt, plus they pay a high dividend so management has confidence in the future.

The Dogs Today:

Here is the current list followed by their respective dividend yields:

  1. Chevron Corp. (NYSE: CVX): 6.0%
  2. International Business Machines Corp. (NYSE: IBM): 5.3%
  3. Dow Inc. (NYSE: DOW): 5.1%
  4. Walgreens Boots Alliance Inc. (NASDAQ: WBA): 4.6%
  5. Verizon Communications Inc. (NYSE: VZ): 4.2%
  6. 3M Company (NYSE: MMM): 3.4%
  7. Merck & Co. Inc. (NYSE: MRK): 3.3%
  8. Cisco Systems Inc. (NASDAQ: CSCO): 3.2%
  9. Coca-Cola Co. (NYSE: KO): 3.1%
  10. Amgen Inc. (NASDAQ: AMGN): 3.1%

Despite the long-term value of this strategy, the Dogs had a bad 2020 and were down 13% versus a 7.3% gain in the DJIA, mostly because this is a value strategy and we are in an age of momentum.  

As Benjamin Graham said, “In the short run, the market is a voting machine... but in the long run, the market is a weighing machine.”

If you want to sleep at night and still beat the market without paying fees or working hard, the Dogs of the Dow are for you. Just remember to change them again next year.

Best regards,

Christian DeHaemer Signature

Christian DeHaemer

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Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor's page.

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