Dogs of the Dow Variations

As published, the Dogs of the Dow use the dividend yield valuation to identify beat up stocks. One consequence is that only stocks paying a dividend are considered.

Dogs of the Dow using Net Payout Yield

Jack Hough in his book, Your Next Great Stock, points out that dividends are only one way a company can increase shareholder value. Another is share buybacks. He cites an academic study supporting this and suggests an alternative approach (the New Dogs) using both dividends and share buybacks. He refers to this as Net Payout Yield.

This method broadens the universe of possible stocks by considering companies returning value to the shareholders through share buybacks, not just through dividends.

James O’Shaughnessy cites the same academic study but refers to the evaluation of dividends and share buybacks as shareholder yield.

Same concept - different name.

Small Dogs and Motley Fool Dogs

A more intense version of the Dogs are the Small Dogs. Once the 10 highest yielding DJIA stocks are identified, the 5 with the lowest share price are selected. The Motley Fool created a 4 stock variation of the Dogs (the Foolish 4) using the Small Dogs as a starting point.

These variations do not really address any strategy criticisms. Note also that the Fool no longer considers this a valid investing strategy.

Alternate Universes

From a performance point of view, there may be better universes of stocks than the Dow Industrials. ValueLine, Morningstar and S&P highly rated stocks would be examples. Or you could simply pick from a bigger pool of large and mid cap stocks like the S&P 500, the Russell 1000 or international stocks listed on US Exchanges (ADRs).

Alternate Entry Dates and Holding Periods

Also consider a starting date other than January 1 and a holding period other than 1 year and a day.

Screening for Dogs

Most screeners allow identifying high yield stocks from a variety of universes including proprietary ones. Some of the fee-based screeners (and their free versions) allow screening for net payout yield as well.

All the variations mentioned above can be implemented in available stock screeners. I use a variation of the dogs of the dow as part of my overall investment strategy - it has been both profitable and stable. Please consider some backtesting to generate baseline expectations if you choose to make this part of your portfolio.

Details on which screeners will work and the variations they support.

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Return to Dogs of the Dow

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