According to Wikipedia, the Dogs of the Dow, “…is an investment strategy popularized by Michael B. O'Higgins in 1991, which proposes that an investor annually select for investment the ten Dow Jones Industrial Average (DJIA) stocks whose dividend is the highest fraction of their price [highest dividend yield].”
So far, in the year 2018, the ten highest yielding stocks have gained +1.10% while the ten lowest yielding stocks have gained +13.67%, on average. In the same period of time, the Dow Jones Industrial Average has gained +2.34%.
The distinction between the highest yielding stocks as compared to the lowest yielding stocks is very important because the whole purpose of the theory by Micheal O’Higgins is that you’ll be able to consistently beat the Dow Jones Industrial Average if you choose the ten highest yielding stocks every year.
As our January 6, 2018 posting on the top shows, in the period from 1996 to 2017, the “Dogs” (highest yielding stocks) routinely underperformed the DJIA annually. Because most investors are not in the position to buy ten stocks at the beginning of each year, we have provided performance data on the first three stocks (1,2,3) and the next best stocks (2,3,4).
There are several conclusions that should be drawn from the commentary above:
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High yield equals high risk, even among blue chip category.
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Fewer stocks means greater volatility.
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Low yield DJIA stocks track momentum performance, exceptional reward with exceptional risk.
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If you want “average” performance buy the index fund.
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If you want exceptional return with more risk, buy the 2nd, 3th and 4th ranked stocks among the high p/e or low yield stocks.