The Dogs of the Dow investment strategy is very simple. Here are the steps:

The Dow Jones Industrial Average is made up of large blue chip stocks. The Dogs of the Dow strategy looks for the cheapest of these stocks based on their dividend yields. The idea behind the Dogs of The Dow strategy is to purchase high quality businesses at cheap prices relative to their peers.  The strategy was popularized in 1991 by Michael B O'Higgins in his book Beating the Dow.

The Dow Jones Industrial Average aims to represent the total US economy with its constituents. Because of this, the Dow is heavily diversified, with most stocks coming from different industries. The diversification of the Dow Jones Index helps the Dogs of the Dow strategy to maintain an adequate level of diversity no matter what 10 stocks are selected each year.

The Dow Jones Industrial Average Changes Over Time

The Dow Jones Industrial Average is adjusted periodically to account for changes in the US economy and from the specific constituents in the index.  These changes help the Dow Jones Industrial Average more closely match the performance of the overall stock market. The image below shows the constituents of the Dow Jones Industrial Average by year from 2005 to 2014 at the beginning of each year. If a cell is shaded in blue, the stock is included in the Dow Jones for that year. If a cell is shaded in red, the stock is not in the Dow Jones for that year.

What Stocks Does The Dogs of The Dow Select?

Price movements and dividend changes impact the dividend yields of the Dow Jones constituents. As a result, the stocks the Dogs of the Dow strategy selects change each year. Additionally, adding or removing stocks from the Dow Jones Industrial Average impacts the rankings of the Dogs of the Dow strategy.