Running With The Dogs

Posted on 1-16-2020

This week, Craig Siminski, of CMS Retirement Income Planning, shares an article that helps us see how the Dogs of the Dow, an investing strategy known for chasing dividends and value, can be implemented through a unit investment trust:

The Dogs of the Dow is a simple investing strategy that combines an emphasis on dividends and value. It involves investing in the 10 stocks from the Dow Jones Industrial Average (the Dow) that have the highest dividend yields on the last trading day of a given year.

Typically, the purchases are made on the first trading day of the new year, with working capital spread evenly among the 10 stocks. The stocks are then held until the end of the year, when the process is repeated.

Underperformance or Value?

In investing parlance, a “dog” is a chronically underperforming stock that drags down overall portfolio performance. However, there are seldom any true “dogs” in the Dow, which is composed of 30 of the largest, most stable U.S. companies.

In fact, the Dogs strategy is based in part on the assumption that companies listed in the Dow offer consistent dividends, so when a company’s dividend yield increases beyond its typical range, the share price is generally lower than usual and might be undervalued. (Dividends are typically expressed as a fixed amount per share, so a lower share price increases the dividend yield.) By this logic, the company’s stock may be poised to …

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 21 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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