the Dogs of the Dow

The Dogs of the Dow is a popular quantitative process that was introduced by Michael O’Higgins in 1991 in his book Beating the Dow. He discovered it as he was looking for a consistent and measurable system of stock selection that outperformed the Dow Jones Industrial Average (DJIA) annually. Similarly, an initial search criterion that you construct may be based on a simple filter.

The Dogs of the Dow is a very simple process that calls for the buying of an equal dollar amount of the 10 stocks with the highest yields from the DJIA. They are to be held for a period of one year, at which time the screen is reevaluated. At that time, you find the 10 stocks with the highest yields again, sell any of the stocks that are no longer on the top 10 list, and replace them with the new “highest-yielders.”

This method is dubbed the Dogs of the Dow because the high yielding stocks are the ones with prices that are low relative to the dividends paid, indicating stocks that are potentially out of favor.