A Conservative Strategy to Consistently Beat the Dow

It’s all about the strategy.

Unfortunately, most self-directed investors invest in the latest and greatest stock, based on someone else’s opinion. CNBC exists because of this fact. And because so many self-directed investors believe in nothing more than a story, they are left with a basket of potentially hazardous stocks.

This isn’t strategy; it’s a travesty. The only people that benefit from this are investment professionals.

At Wyatt Investment Research, we teach strategies. Whether its dividend investing, small-cap investing or various options strategies, our analysts provide world-class information on “how to” invest. Of course, we have a few picks that we think are worthy of mention, but ultimately our goal is to provide you with long-term strategies that will carry you into retirement and beyond.

Today I want to teach you about how I approach one of my favorite long-term strategies – The Dogs of the Dow.

The Dogs of the Dow is a simple and effective strategy that has outperformed the Dow over the last 50 years.

Here’s how it works.

Pick the 10 highest-yielding of the 30 Dow stocks, and equally weight the stocks within your portfolio. After the initial set-up all you will need to do is adjust the portfolio annually and of course, reap the rewards. Historically, the Dogs of the Dow strategy have outperformed the larger Dow by approximately 3% a year.

It doesn’t get any simpler, right?

One of the key attractions of using the conservative strategy is that it requires very little time doing research. Simply take the 10 highest-yielding Dow Industrial stocks at the start of the year or any other period, for that matter and invest an equal sum in each stock. Then, 12 months later, the whole process starts over. Oftentimes, most of the stocks will remain on the list from one year to the next, simplifying things from an accounting perspective (no gains/losses to report) and also helping to lower commission costs.

In order of current yields, 2013’s Dogs of the Dow are made up of the following stocks:






















General Electric






Johnson & Johnson                         






While the Dogs have beaten the Dow 30 Industrial Average’s performance in two of the last three years, they’ve only come out ahead in three of the last seven.

But simply beating the Dow is not the be-all and end-all of this strategy. Of particular interest to income investors is the fact that the Dogs start every year with a distinct advantage over the rest of the Industrials. This time around it’s a combined yield of just below 4.0% versus about 2.6% for the index as a whole. That may not sound like much. But in a world where money-market funds and bank accounts pay about one-tenth of a percentage point, and with the Federal Reserve resolving to keep things that way until at least 2014, solid blue chip stocks with good yields tend to be sought out by a wide group of investors, both retail and institutional. This suggesting the underlying demand for these shares will remain strong, if not increase, in the quarters ahead.

And if you are interested in further increasing your Dogs of the Dow performance, please make sure to check out this Sunday’s edition of The Strike Price. I will discuss how I use the Dogs of the Dow strategy as a foundation for producing income, thereby further increasing the performance of the market-beating strategy. Stay tuned!!!


Andrew Crowder

Editor and Chief Options Strategist

Options Advantage and The Strike Price

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