What the Dogs of the Dow Strategy Is and Why 2017 Matters
The Dogs of the Dow strategy is a rules-based, value-oriented approach in which investors select the highest-dividend-yielding stocks in the Dow Jones Industrial Average at the start of each year. For 2017, this method highlighted companies offering relatively higher income yields, often tied to more mature, steady-cash-flow businesses. The rationale is that higher current yields can help offset valuation uncertainty and provide downside cushion. Over time, the approach has shown a tendency to outperform the broader Dow when dividends and price behavior are combined, though performance varies by year. This guide explains the methodology, reviews how 2017 played out, and discusses realistic expectations for using Dogs of the Dow in a long-term portfolio.
How the Dogs of the Dow Method Works
The strategy follows a simple, repeatable set of rules designed to remove emotion from selection and emphasize income and relative value:
- At the start of the calendar year (typically early January), list the 30 Dow components.
- Calculate each stock’s dividend yield for the most recent 12-month period.
- Rank stocks by yield, from highest to lowest.
- Select the top 10 yields, which represent roughly one third of the index.
- Hold these stocks for the full calendar year (or for the standard variant, until the next rebalance).
- Optionally, reinvest dividends to compound returns.
This process emphasizes dividend yield as a proxy for relative value and income. By design, the strategy tends to overweight sectors such as financials, consumer staples, and energy, where mature companies commonly pay higher dividends. It is important to note that past yield rankings do not guarantee future returns, and holdings can carry sector concentration risks.
Key Definitions Used in the Rules
| Attribute | Verified Detail | Source Type |
|---|---|---|
| Selection date | Early January (calendar year start) | Methodology convention |
| Number of holdings | Top 10 by dividend yield | Strategy definition |
| Rebalance frequency | Annual (January) | Standard implementation |
| Underlying index | Dow Jones Industrial Average (30 stocks) | Market benchmark |
Dogs of the Dow in 2016: The Starting Point for 2017
To understand how the strategy behaved in 2017, it is helpful to briefly review 2016, because the holdings carried into the new year. In 2016, the Dow delivered a total return of approximately 13.4%, with both price appreciation and dividends contributing. The high-yield Dogs at the end of 2016 generally included companies with established payout profiles. Common sectors among the top yielders were financials, industrials, and materials, reflecting the income-focused nature of the screen. Investors who held these high-yield names through 2016 experienced sector-specific exposures that persisted into 2017.
Dogs of the Dow 2017: Selection and Performance
For 2017, the Dogs of the Dow selected by calendar year would have included the following top-yielding Dow components as of the January 2017 screening. Specific yields are rounded to one decimal place and are illustrative based on historical dividend and price data:
| Rank | Company (Ticker) | Approximate Dividend Yield (Jan 2017) | 2017 Price Return (approx.) | Combined Total Return (Price + Div) |
|---|---|---|---|---|
| 1 | Verizon Communications (VZ) | 5.1% | −2.9% | +2.2% |
| 2 | AT&T (T) | 5.0% | −1.1% | +3.9% |
| 3 | IBM (IBM) | 4.6% | +0.8% | +5.4% |
| 4 | Intel (INTC) | 4.5% | +10.3% | +14.8% |
| 5 | Caterpillar (CAT) | 3.8% | +13.3% | +17.1% |
| 6 | Chevron (CVX) | 3.8% | +5.6% | +9.4% | 3.6% | +25.1% | +28.7% |
In 2017, the broader Dow Jones Industrial Average delivered a strong calendar-year return of approximately 25.1%. The Dogs of the Dow as a group also performed well, with many holdings benefiting from both dividend income and solid price gains. Notably, technology and industrials such as Intel and Caterpillar posted robust returns, lifting the overall Dogs portfolio. When including dividends, the Dogs total return for 2017 generally tracked close to or above the Dow’s gain, highlighting the strategy’s effectiveness that year. However, it is important to recognize that this outcome reflected prevailing market conditions, including sector rotation and macroeconomic trends that may not repeat.
Performance Drivers and Context in 2017
Several factors helped the Dogs of the Dow perform strongly in 2017:
- Broad risk-on sentiment supported dividend-paying stocks, especially in financials and industrials.
- Reflationary expectations around infrastructure spending benefited cyclical names like Caterpillar.
- Low interest rate environments in early 2017 kept pressure on bond yields, making higher equity yields relatively attractive.
- Strong corporate earnings in several Dow components supported both prices and dividend sustainability.
At the same time, concentration in lower-growth, mature businesses meant that Dogs did not participate in the most extreme momentum in small-cap or growth-oriented segments. Investors should weigh sector exposure and valuation levels when adopting a yield-based ruleset.
Practical Considerations and Limitations
While the Dogs of the Dow can be an easy-to-understand, rules-based way to emphasize income, the strategy has notable limitations:
- High current yield does not guarantee safety; elevated yields can reflect market concerns about fundamentals.
- Annual rebalancing can produce transaction costs and tax implications in taxable accounts.
- Sector concentration may increase volatility if a few industries dominate the highest-yield list.
- Performance depends strongly on the macro environment; in some years, growth or momentum strategies outperform.
Because of these factors, many investors treat Dogs of the Dow as one component of a broader, diversified income or core-satellite allocation rather than a standalone mandate.
Key Takeaways for Long-Term Investors
For long-term investors, the Dogs of the Dow strategy in 2017 illustrates both the potential and the constraints of a yield-first approach. Highlights include:
- Income investors gained exposure to companies with established payout histories and, in 2017, participated broadly in market gains.
- Annual screening provides a disciplined method to refresh holdings and reassess valuation and risk.
- Outperformance is neither guaranteed nor consistent; results depend on market conditions and portfolio construction choices.
- Dollar-cost averaging into a Dogs-based portfolio can reduce timing risk versus deploying capital in a single annual purchase.
Used thoughtfully, with attention to concentration, taxes, and total cost, a Dogs of the Dow–inspired framework can complement a long-term, income-oriented investment plan.
Conclusion
The Dogs of the Dow strategy offers a transparent, rules-based method for building a dividend-focused portfolio, and 2017 demonstrated how such an approach can perform when broader markets are favorable to income and cyclical sectors. While not suitable for every investor or every year, the framework remains a valuable educational tool for understanding the tradeoffs between yield, valuation, and diversification. Past performance is informative but not deterministic; investors should align any implementation with their risk tolerance, time horizon, and broader financial objectives.