The “Dogs of the Dow” investment strategy aims to beat the index by looking for cheap blue chip stocks with higher yields relative to their peers. It is simple to execute – just buy and hold the top 10 DJIA stocks, ranked by their dividend yields. This strategy has been around for over 30 years.
It used to be popular, but this strategy has since faded away for more contemporary ones. However, it does not mean that the strategy is inferior; it is just not in vogue.
The original “Dogs of the Dow” strategy
The “Dogs of the Dow” strategy centres on the 30 blue chips in the Dow Jones Industrial Average (DJIA) index.
Most investors will find comfort in the well-known, and familiar names as these are the most important enterprises in the country. These blue chip companies are believed to be ‘safer’ because they are expected to weather market and economic downturns better than smaller companies.
The resilience suggests that any share price corrections to these blue chip stocks are opportunities for investors. They can buy at cheaper prices and be rewarded with higher prices when the market or economy recovers.
Key Indicator used: dividend yield
Dividend yield can be used as a crude valuation metric because the stock price should be low for the dividend to be high. There’s this inverse relationship between price yield:
It is essentially a value investing approach betting on the mean reversion effect. This means buying at a cheap price (value) and believing what goes down will come up eventually (mean reversion).
According to the Dogs of the Dow website, the performance of this strategy has performed better than DJIA and S&P 500 indices over the same period of time (ending Dec 2018):
| Annualised returns | 5 Year | 10 year | 2000-2018 |
|---|---|---|---|
| Dogs of the Dow | 13.4% | 15.9% | 9.5% |
| DJIA | 13.3% | 13.9% | 8.4% |
| S&P 500 | 12.5% | 14.2% | 7.7% |
However, the 2019 figures from the website showed that the strategy underperformed. While it is normal for a strategy to underperform in some years, what’s important is that it outperforms other indices over a long period.
At this point, you might be wondering how it has performed given the bearish market sentiments. Well, it has not been spared by macroeconomic impacts. Here’s the Year-to-Date performance, as of 30 Jan 2023:
| YTD Returns (as of 30 Jan 2023) | YTD Yields (as of 30 Jan 2023) | |
| Dogs of the Dow | 1.1% | 4.47% |
| DJIA | 1.7% | 2.56% |
| S&P 500 | 5.06% | 1.64% |
Dogs of the Dow is about buying and holding the top 10 DJIA stocks, ranked by their dividend yields. It is important to note that they must be updated once a year.
Here is a current snapshot of the current 10 Dogs of the Dow stocks as of 30 Jan 2023:
| Company | Symbol | Price (USD) | Yield |
|---|---|---|---|
| Verizon | VZ | 41.05 | 6.36% |
| Dow | DOW | 57.95 | 4.83% |
| Intel | INTC | 28.04 | 5.21% |
| Walgreens | WBA | 36.53 | 5.26% |
| 3M | MMM | 112.58 | 5.29% |
| IBM | IBM | 135.30 | 4.88% |
| Amgen | AMGN | 251.59 | 3.39% |
| Cisco | CSCO | 48.33 | 3.15% |
| Chevron | CVX | 174.34 | 3.46% |
| JP Morgan Chase | JPM | 139.13 | 2.88% |
Dogs of the STI
I got the idea of applying the Dogs of the Dow to the Straits Times Index (STI). It is highly applicable considering that both DJIA and STI have 30 stocks each. Furthermore, STI has plenty of dividend-yielding stocks.
There are some differences, though.
i) Dividend taxation
First, there’s no dividend taxation in Singapore. In contrast, there’s a 30% dividend tax in the U.S. This means a dividend strategy works better for Singapore stocks. Here, you get to keep all the dividends.
ii) REITs
Second, there are a handful of REITs in the STI, and their dividend yields are relatively higher than the non-REIT counters. This is because REITs are required to distribute at least 90% of their rental income to unitholders if they want to enjoy tax incentives. Hence, I expect REITs will be a mainstay in the Dogs of the STI portfolio.
With the help of PyInvesting, I managed to conduct a backtest on this strategy. It beat the STI convincingly, given that the performance of Singapore stocks has been uninspiring for the past ten years.
For reference, let us compare their performance for the period between 2008 till date. The Dogs of the STI returned 7.4% per year. This is in comparison to STI ETF (SGX: ES3), with a return of 0.8% per year. That’s a 9x difference in performance!
10 Dogs of the STI stocks
(Accurate as of 30 Jan 2023)
| Stock | Ticker | Dividend Yield |
|---|---|---|
| Thai Beverage | Y92 | 73.0% |
| Yangzijiang Shipbuilding | BS6 | 15.6% |
| SATS Ltd | S58 | 6.7% |
| Frasers Logistics | BUOU | 5.5% |
| Dairy Farm | D01 | 4.9% |
| Hongkong Land | H78 | 4.9% |
| ComfortDelGro Corporation | C52 | 2.9% |
| DBS Group | D05 | 2.7% |
| Singapore Telecommunications | Z74 | 2.7% |
| Jardine Cycle | C07 | 1.8% |
These are very familiar names for Singapore stock investors, and their yields are higher than the overall STI. Hence, I think most investors will have no issues implementing a portfolio like this.
For the more ambitious dividend investors who want to retire early, Chris Ng shares his refined dividend investing strategy. It allowed him to retire at 39, take a law degree, and provide for his children.
A simple yet effective strategy to beat the market
The Dogs of the STI is a simple strategy:
- buy the top 10 STI stocks by dividend yield and review the ranking each year.
- Sell those that fall off the scale and replace them with those whose yields have gone up significantly.
It is essentially a value investing strategy where you buy low and sell high. In the meantime, you collect dividends.
I’ve recorded a quick video masterclass here:
Higher returns vs. consistent returns
Some would argue the returns are not as high as U.S. stocks. While this is true, investing is not always about getting the highest return. It is also about having the ability and putting in the effort required to achieve the returns.
It is also important to remember that markets change. What is performing well today may not do so well in the future. Therefore, long term and sustainable returns matter more.
Look to the long term
I think this would be a good strategy for those who want to invest their CPF monies in stocks. It should comfortably beat the CPF OA interest of 2.5%. That said, just be aware that the strategy can still lose money in some years. Nonetheless, it should do well over the long term.
Final thoughts
Dogs of the STI is one of the simplest stock investing strategies out there, and most investors shouldn’t have a problem implementing it.
Do you like the strategy? Share your thoughts in the comments below!
For the more ambitious dividend investors who want to retire early, join Chris Ng here as he shares a refined dividend investing strategy that allowed him to retire at 39, take a law degree, and provide for his children. You should also check out PyInvesting if you would like to backtest any strategy.
hello Dr wealth, can i ask if say we allocate $10k to each counter, and after 1 year, one of which increase to 15% (as per ur example), we will sell the 5%which is $500 .. does it still make sense if i am using vickers upfront and per transaction is about $12?
keep the comms below 1% of your investment amount is still reasonable. If $12 min comm, then you should only rebalance if the amount is more than $1200
Hello,
Noticed some differences when extracting the data from sgx and tradingview. Doesn’t matter much? Which should be followed?
Also, would there be any significant advantages/disadvantages to doing a monthly rebalancing vs the yearly one?
Thanks!
data is never 100% accurate or the same. Even for dividend yield, is it historical, trailing, forward? When did the data get updated. All these contribute to the differences.
You can compare to a handful of sites to see which is more accurate. Or even get the data directly from the company reports.
More rebalancing would mean more commission costs and effort. On the other hand there have been research saying more rebalancing lead to slightly higher returns. I believe there will be minimal differences after considering the costs.
Hi! For dividend yield, would you suggest using a forward div yield or a trailing div yield?
i use trailing. But you can use forward too, just understand that is an estimation which may not come true.
I have a question. If you only have 5k to invest and split to all these stocks..some of them are like $20+ dollar and minimum lot size is 100.How can i go around this issue?buying odd lot from some broker?
odd lots are not recommended since the spread is larger. Another approach is to buy a smaller number of stocks if capital is small.
Hi, in the back testing is the rebalancing done in Jan every year? Do we keep them for the whole year even if the stock is removed from STI during the quarterly review?
yes, backtest is once a year. but if you want to rebalance whenever there is a change is sensible too
Do you guys managed investing for a fee?
no
Interesting investment concept! How does dogs of STI compare against the broad STI index in 2022? Any insights on the over/under performance?
One year isn’t enough to compare. That’s why we did the backtest over several years
Hello just wondering if Thai beverage is correctly stated at 73%, that seems like an extreme outlier. Does dogs strategy take into account such outliers and make an exception or it’s blindly buy top 10 yield no matter what the variance is? (No sense check like maybe +/- 10% or something?)
Yes, one should check when the yields are extremely high. Sometimes it can be due to special dividends being given, which is not repeatable.
Hi, can I confirm – does the list include or exclude the REITs counters? This is not clear.
include
Hi
A question I have is when the market is not good (eg. STI falls below 3K), and the portfolio is making a loss (every counter has fallen below 10%). How should I rebalance when it is time to do so? Do I pump in more capital or rebalance the portfolio with the remaining value of the portfolio
it is optional. up to your comfort level if you want to add in more capital. Else you just rebalance without adding portfolio. Your new 10% will be a lower quantum. For eg. if you started off with $10k and the overall portfolio goes to $9k, your new 10% is $900 each. Vice versa when the portfolio value increase, your 10% will change in value.