Are you considering investing money in the stock market, but you’re afraid of putting your hard-earned dollars into unknown companies? Maybe you would prefer blue chip stocks, the most valuable companies in the world, that ones that you think that you can just buy and forget about. However, recent years has taught many investors that even the best-known firms are not immune to market downturns and need monitoring. But perhaps you are not interested in complex stock trading systems that are difficult to use effectively over a long time. So where does that leave you?
The 30-year old Dogs of the Dow Theory is one of the simplest ways to select and own blue chip stocks. The concept requires that you put an equal amount of money into each of the Dow Jones Industrial Average’s top-ten yielding stocks. Twelve months later, you repeat the process and make adjustments.
The thinking behind the Dogs of the Dow is that the yields of Dow stocks increase as those stocks lose popularity. Nevertheless, since they are the part of the DJIA, proponents of the Dog Theory believe that the high-yield stocks are the most depressed in the Index. Therefore, they are the cream of the crop and are solid values.
With Treasury note yields at record lows, the Dow Dogs’ average dividend might look pretty attractive. And since the income tax on dividends has been reduced to 15%, those high-dividend Dogs could have another reason to howl. If you are not comfortable owning individual stocks, there are mutual fund managers who use the Dogs of the Dow Theory. But because of regulations, they must hold more than 10 stocks. To meet that requirement some keep half of their fund’s assets in Treasury securities.
For illustrations on how the Dogs of the Dow have performed over recent years, please return the enclosed coupon.
