Date
22 July 2018
In five of the past six years, buying the dogs of the Dow returned better than investing in the index. Photo: Biztechmojo
In five of the past six years, buying the dogs of the Dow returned better than investing in the index. Photo: Biztechmojo

A simple way to beat the Dow

Dogs of the Dow refer to the ten companies in the benchmark US stock index that offer the highest dividend yields by the end of each year.

If an investor invested in a basket of dogs of the Dow and held on to them for a year, then adjusted the mix by switching to the new group of “dogs” a year later, and kept on doing this over the past five years, the average annual return would have been 14.9 percent, compared with 11.7 percent for the Dow Jones Industrial Average.

Also, in five out of the past six years, this approach had a better return than the Dow.

Last year, for instance, the Dow rose 14 percent while a “dog” portfolio returned 21 percent.

For 2016, eight of the “dogs” were old ones and only two were new Intel and Coca-Cola which replaced Wal-Mart and Merck.

Caterpillar was the best-performing dog share last year: it rose 40 percent.

Despite the gain, its yield still exceeds 4 percent, thereby keeping its place in the new set of dog stocks.

Nevertheless, statistics is one thing, actual performance is another. Only by the end of this year would we know whether the outperforming pattern would repeat itself.

The full article appeared in the Hong Kong Economic Journal in Chinese on Jan. 4

Translation by Raymond Tsoi

[Chinese version 中文版]

– Contact us at [email protected]

RT/CG

Columnist at the Hong Kong Economic Journal

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