The Dogs of the Dow is an investment strategy that attempts to beat the Dow Jones Industrial Average (DJIA) each year by leaning portfolios toward high-yield investments. The strategy was developed in 1991 by Michael B. O’Higgins, who published a book on the topic.The premise behind the Dogs of the Dow theory is that, over time, certain stocks within DJIA will outperform others and that investors can improve their portfolio returns by overweighting these stocks. To identify these outperforming stocks, O’Higgins recommended selecting the ten highest-yielding DJIA stocks at year end and holding them throughout the following year.This approach has been used with some success; between 1992 and 2016, an investor who followed this strategy would have beaten both Standard & Poor’s 500 Index (S&P 500) and DJIA every single year except for 2008 when all asset classes were down significantly.However, there are a number of risks associated with this type of investing including interest rate risk (the potential for losses if rates rise), credit risk (the potential for defaults or downgrades), company specific risk (the potential for individual companies to underperform), as well as market risk (the possibility that markets could decline overall).
