From July 2024 to the present, the global financial market has ushered in a new wave of turmoil.

●The global stock market, represented by U.S. stocks and Japanese stocks, plummeted, and the VIX index, which reflects the degree of stock market volatility, rose sharply;●Global risk-free long-term interest rates have declined, with the 10-year U.S. Treasury bond yield falling from around 4.20% to around 3.75%;●The U.S. dollar index fell, with the U.S. dollar falling most significantly against the Japanese yen. From July 10 to August 5, the exchange rate of the US dollar against the Japanese yen fell from 161.73 to 143.95, a depreciation rate of 11%.●Global gold and crude oil prices fell significantly

High-dividend stocks are often seen as a safe haven for investors when the economy is unstable or the stock market is turbulent.

However, not all stocks in the U.S. stock market can provide stable dividends. So how to quickly find high-quality high-dividend stocks with stable dividend payments?

This article will introduce you to a very simple defensive stock picking strategy: the "Dow Dogs" strategy.

What is the Dow Dogs Strategy?

The Dow Dog Stock Strategy is a stock selection strategy proposed by Wall Street fund manager Michael B. O’Higgins in the 1991s.

Simply put, this strategy is to select the 10 stocks with the highest dividend yields among the constituent stocks of the Dow Jones Industrial Average, buy them at the beginning of the year, and then sell them at the end of the year.

In 2022, the Dow Dogs strategy performed well against the backdrop of broader market declines, with the "Dow Dogs" portfolio (which includes dividend yield) up 2.2%, compared with an 8.8% decline for the Dow and an 8.8% decline for the S&P 500 The index and the Nasdaq index even fell by double digits, becoming a safe haven for investors when the market fluctuates violently.

What is the principle of the Dow Dog Stock Strategy?

The core of the Dow Dog Stock Strategy is the dividend rate, which takes the dividend rate as the benchmark for valuation. If the dividend rate is higher, it means that the stock price is more likely to be undervalued, and there may be opportunities to obtain excess returns in the future.

The 30 constituent stocks in the Dow Jones Index are generally carefully selected "blue chip stocks." They are large companies with a long history and good financial status, with a market value of more than several billion dollars and stable profits. These companies usually do not change their dividend policies easily, which ensures the stability of dividend payments.

In contrast, its stock price may fluctuate throughout the business cycle. Stock prices of companies at the trough of the business cycle tend to be lower than those at the peak of the business cycle. Therefore, stocks with high dividend yields may mean that the company is at the bottom of the business cycle and the stock price has fallen to a relatively low level, which provides investors with an opportunity to potentially profit.

Practical application of the Dow Dog Stock Strategy

In actual combat, the Dow Dog Stock Strategy is divided into the following steps:

●Screen stocks: At the end of each year, sort all 30 stocks in the Dow Jones Industrial Average based on their dividend yields (i.e., dividends divided by stock prices), and select the 10 stocks with the highest dividend yields.

●Equal investment: Allocate funds equally to these 10 high-dividend stocks and invest separately.

●One-year holding: Hold these stocks for one year without operations or adjustments to obtain dividend income and potential capital appreciation.

●Annual adjustment: After one year, sort the Dow component stocks again according to the latest dividend yield, select 10 new high-dividend stocks, adjust the investment portfolio, sell stocks that no longer meet the conditions, and buy new ones. of high dividend stocks.

What are the Dow Dog Stocks in 2024?

According to data from the DogsoftheDow.com website, based on the closing price and dividend rate on December 23, 2023, the "Dow Dog Stocks" in 2024 are the following 10 companies:

How does the Dow Dogs strategy perform?

According to an article in the Wall Street Journal by analyst John Slatter, the Dow Dogs strategy initially worked. Slater found that from 1973 to 1988, the Dow Dogs strategy returned 18.4% annually, nearly double the Dow Jones Industrial Average's 10.9% annualized return.

However, over the last 10 years, the Dow Dogs strategy has not been able to outperform the market.The latest data from S&P Dow Jones Indices shows that from 2012 to 2022, the Dow Dogs strategy returned an annualized return of 11.6%, slightly lower than the Dow Jones Industrial Average's 12.2% annualized return and the S&P 500's 12.5 % annualized return.

Over the past decade, the Dow Dogs strategy has underperformed the S&P 500 and the Dow Jones, mainly due to the rise of technology stocks and the market's preference for growth stocks. The S&P 500 has benefited from the strong performance of technology giants, while the Dow Dogs strategy focuses on traditional high-dividend industries such as energy and financials, which have performed poorly. At the same time, the market has a clear preference for growth stocks, which grow profits quickly but pay out smaller dividends. As a result, traditional high-dividend stocks (usually companies in mature industries) have relatively underperformed during this time, impacting the overall returns of the dog-stock strategy.

Is this strategy still relevant today

Although the Dow Dogs strategy has slightly underperformed the Dow over the past decade, if investors just want to add some high-dividend blue-chip stocks to their portfolio but aren't sure how to choose, the Dow The Dog Stock Strategy is still a pretty good way to pick high-dividend stocks.