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strategy is attractive is because it requires minimal effort. By analyzing the dividend yields of stocks contained within the Dow, those stocks that are potentially undervalued are readily apparent because, all else being equal, as the stock price declines, the dividend yield increases because the dividend payout represents a larger portion of the stock price. The dividend yield is calculated by dividing the annual dividend by the current stock price.
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is that a high-dividend yield suggests both that the stock is oversold (or under-valued) and that management believes in its company's prospects and is willing to back that up by paying out a relatively high dividend. Investors are thereby hoping to benefit from both above-average stock-price gains as well as a relatively high quarterly dividend that can be re-invested to buy additional shares.
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A 1998 study found the Dogs of the Dow exploited the "market overreaction hypothesis", taking advantage of investor psychology and the tendency to overreact to negative news. However, the study also noted that the Dow stocks with high-dividend yield were not necessarily the worst performers any given
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often occurs after a significant stock price decline, a high dividend relative to stock price for a blue-chip company tends to suggest that the stock may be a reasonable value with the potential for the stock price to rebound in conjunction with a high dividend payout. One reason the Dogs of the Dow
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Due to the nature of the concept and limited number of stocks involved, the Dogs of the Dow will likely not cover all market sectors. For example, the ten stocks that belonged to the 2019 Dogs of the Dow list came from only seven sectors, including technology, energy, and healthcare, in contrast to
92:
Under this model, the investor buys an equal number of the ten company's shares. The investor re-invests all dividends or capital gains, and long-term may obtain superior results. The data from Dogs of the Dow suggests that this has been the case since the turn of the century. The logic behind this
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is the highest fraction of their price, i.e. stocks with the highest dividend yield. Under other analysis these stocks could be considered "dogs", or undesirable, as companies often raise their dividend in response to bad news or a decline in share price. But the Dogs of the Dow strategy proposes
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magazine where he criticized the Dogs method. Tobey proposed the equal-weighting method for the Dogs made it difficult or impossible to accurately compare to the DJIA, which uses a different method of price-weighting the stocks. He said that, for the year 2013, using the price weighting the Dogs
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companies that make up the Dow Jones
Industrial Average are better able to withstand market and economic downturns and maintain their high dividend yield due to their access to factors such as their established business and brands, access to credit markets, ability to hire top-level management,
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O'Higgins and others back-tested the strategy as far back as the 1920s and found that investing in the Dogs consistently outperformed the market as a whole. Since that time, the data shows that the Dogs of the Dow as well as the popular variant, the Small Dogs of the Dow, have performed well.
207:(i.e., how much of the company's profits are devoted to dividends), growth of cash and earnings, and price performance. However, he did not offer advice on how to integrate these factors into the Dogs method. He also criticized the Dogs strategy for back-testing, which can be susceptible to
412:
Ahmad, Noryati & Mohamad Ghouse, Siti Hajar Nadrah & Ghouse, Nadrah & Salamudin, Norhana. (2017). SOCIAL SCIENCES & HUMANITIES Empirical
Analysis of the Dogs of the Dow (DoD) Trading Strategy in Developed and Developing Asian Markets. Pertanika Journal of Social Science and
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When each individual year is reviewed, it is clear that both the Dogs of the Dow and Small Dogs of the Dow did not consistently perform well on a yearly basis. In fact, the Dogs of the Dow and Small Dogs of the Dow struggled to keep up with the Dow during latter stages of the
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The Dogs of the Dow method has been studied internationally and adapted to many foreign markets. Research shows over long-periods, the Dogs method tends to result in superior risk-adjusted performance relative to market averages. However, the method may also result in more
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A 2019 study found the Dogs of the Dow had been disappointing in the few previous years, after taxes and transaction costs, and also suggested holding the 30 Dow stocks equally-weighted will be superior to both the DJIA and the Dogs of the Dow.
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Independent research has produced conflicting results. Some studies find mixed or negative results for the method, but application of the method to international markets confirmed the Dogs of the Dow method may offer superior long-term results.
132:. This suggests that an investor would be best served by viewing this as a longer-term strategy by giving this portfolio of stocks time to recover in case of a rare-but-extreme economic event (e.g., dot-com boom, financial crisis).
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Mingyue Qui et al, Empirical
Analyses of the "Dogs of the Dow" Strategy: Japanese Evidence. International Journal of Innovative Computing, Information and Control, Volume 9, Number 9, September 2013
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Eemeli Rinne & Sami
Vahamaa, 2011. "The 'Dogs of the Dow' strategy revisited: Finnish evidence," The European Journal of Finance, Taylor & Francis Journals, vol. 17(5-6), pages 451-469.
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The Small Dogs of the Dow, which are the five lowest-priced Dogs of the Dow, outperformed both the Dow and S&P 500 with an average annual total return of 12.6 percent.
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For example, for the twenty years from 1992 to 2011, the Dogs of the Dow on average matched the average annual total return of the DJIA (10.8 percent) and outperformed the
162:, and agrees it has a strong long-term track record but notes it can underperform for several years at a time. Malkiel questions if the method can truly contradict the
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319:“John R. Dorfman, “Study of Industrial Averages Finds Stocks with High Dividends Are Big Winners,” Wall Street Journal August 11, 1988, C2.” Cited in Siegel (2005).
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363:, Charles E. Mossman. The rise and fall of the “Dogs of the Dow”, Financial Services Review, Volume 7, Issue 3, 1998, Pages 145-159, ISSN 1057-0810,
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Kim, Doh-Khul. (2019). The Dogs of the Dow Theory – Is It Valid?. International
Journal of Economics and Finance. 11. 43. 10.5539/ijef.v11n5p43.
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Siegel, Jeremy J. (2005). The Future for
Investors: Why the Tried and the True Triumphs Over the Bold and the New. Crown, ISBN 978-1400081981
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would have returned less, rather than more, than the DJIA. He suggested that the Dogs strategy is too simple and it neglects factors such as
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and short-term underperformance. Studies have analyzed the method in
Finland; Japan; China, and six small nations in Southeast Asia.
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Carol Wang, et al., The Dogs of the Dow in China. International
Journal of Business and Social Science Vol. 2 No. 18; October 2011
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Beating the Dow – A High-Return, Low-Risk Method for
Investing in the Dow Jones Industrial Stocks with as Little as $ 5,000
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181:(2005) as “one of the most successful investing strategies of all time." The Dogs method can be particularly effective in
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these same stocks have the potential for substantial increases in stock price plus relatively high dividend payouts.
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Though popularized in the 1990s by O'Higgins, the "Dogs of the Dow" or "Dow 10" theory has an older history.
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or other shortcomings. He also predicted that the strategy would not work well for 2014.
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popularized by
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Official Website, which has been tracking this investment strategy since 1995
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On January 8, 2014, asset manager John S. Tobey wrote an article in
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O'Higgins, Michael; Downes, John (2000, revised and updated).
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discusses the Dogs of the Dow in the 1999 version of his book
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Stock investment strategy based on Dow Jones Industrial index
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Proponents of the Dogs of the Dow strategy argue that the
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177:has endorsed the Dogs of the Dow, describing it in
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84:ability to acquire dynamic companies, etc. Since a
54:An article by H. G. Schneider was published in
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365:https://doi.org/10.1016/S1057-0810(99)00007-4
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60:in 1951, based on selecting stocks by their
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308:"'Dogs of the Dow' and the 'Foolish Four'"
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272:. Dogs of the Dow - dogsofthedow.com
270:"'Official Dogs of the Dow website'"
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423:Tobey John S. (January 8, 2014).
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151:A Random Walk Down Wall Street
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773:Multilateral trading facility
233:Business and economics portal
101:which covers eleven sectors.
1307:Dow Jones Industrial Average
1196:Returns-based style analysis
992:Post-modern portfolio theory
898:Security characteristic line
130:financial crisis (2007–2009)
126:dot-com boom (1998 and 1999)
67:The method was discussed in
32:Dow Jones Industrial Average
950:Efficient-market hypothesis
854:Capital asset pricing model
791:Straight-through processing
287:Corporate Finance Institute
168:efficient market hypothesis
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767:Alternative Trading System
170:after transaction costs.
1317:Financial risk management
241:S&P Dow Jones Indexes
831:Arbitrage pricing theory
179:The Future for Investors
1110:Initial public offering
971:Modern portfolio theory
866:Dividend discount model
749:List of stock exchanges
69:The Wall Street Journal
998:Random walk hypothesis
347:"Dogs of the Dow 2019"
164:random walk hypothesis
128:as well as during the
57:The Journal of Finance
1136:Market capitalization
945:Dollar cost averaging
205:dividend–payout ratio
71:in the early 1980s.
956:Fundamental analysis
940:Contrarian investing
903:Security market line
808:Liquidity aggregator
785:Direct market access
696:Quantitative analyst
160:contrarian investing
62:price–earnings ratio
1201:Reverse stock split
1146:Market manipulation
1070:Dual-listed company
930:Algorithmic trading
860:Capital market line
662:Inter-dealer broker
25:investment strategy
1241:Stock market index
1080:Efficient frontier
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799:(private exchange)
689:Proprietary trader
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621:Authorised capital
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842:Buffett indicator
532:Financial markets
306:Staff (undated).
283:"Dogs of the Dow"
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961:Growth stock
935:Buy and hold
844:(Cap-to-GDP)
684:Floor trader
674:Market maker
657:Floor broker
645:Participants
588:Golden share
583:Common stock
559:Third market
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1166:Open outcry
1055:Block trade
987:Pairs trade
209:data mining
115:S&P 500
1322:Investment
1296:Categories
1271:Volatility
1251:Stock swap
1171:Order book
922:strategies
848:Book value
716:Arbitrager
711:Speculator
252:References
191:volatility
173:Professor
144:Professor
86:high yield
887:Fed model
882:EV/EBITDA
797:Dark pool
728:Regulator
573:Types of
539:Types of
292:March 25,
81:blue-chip
1216:Slippage
1176:Position
1161:Momentum
1065:Dividend
744:Exchange
701:Investor
219:See also
136:Analysis
36:dividend
1105:Haircut
909:T-model
721:Scalper
541:markets
436:May 11,
105:Results
75:Concept
47:History
1126:Margin
994:(PMPT)
856:(CAPM)
706:Hedger
679:Trader
652:Broker
575:stocks
475:
430:Forbes
199:Forbes
34:whose
23:is an
1281:Yield
1256:Trade
1191:Rally
1112:(IPO)
1000:(RMH)
973:(MPT)
952:(EMH)
905:(SML)
894:(NAV)
868:(DDM)
862:(CML)
833:(APT)
826:Alpha
793:(STP)
787:(DMA)
781:(ECN)
775:(MTF)
769:(ATS)
1116:Long
920:and
850:(BV)
837:Beta
473:ISBN
438:2016
294:2022
166:and
158:and
97:the
19:The
1298::
471:.
467:.
427:.
324:^
285:.
260:^
64:.
524:e
517:t
510:v
479:.
440:.
367:.
296:.
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