Other Dividend Yield Strategies
There are other high-dividend-yield strategies that have outperformed
the market. A well-known one is called the “Dogs of the Dow,” or the
“Dow 10” strategy, and is chosen from high-yielding stocks in the Dow
Jones Industrial Average.
The Dow 10 strategy has been regarded by some as one of the sim-
plest and most successful investment strategies of all time. James Glass-
man of the Washington Post claimed that John Slatter, a Cleveland
investment advisor and writer, invented the Dow 10 system in the
1980s.^13 Harvey Knowles and Damon Petty popularized the strategy in
their book The Dividend Investor, written in 1992, as did Michael O’Hig-
gins and John Downes in Beating the Dow.
The strategy calls for investors at year-end to buy the 10 highest-
yielding stocks in the Dow Jones Industrial Average and to hold them
for the subsequent year and then repeat the process each December 31.
These high-yielding stocks are often those that have fallen in price and
are out of favor with investors. For this reason the Dow 10 strategy is
often called the “Dogs of the Dow.”
Another natural extension of the Dow 10 strategy is to choose the
10 highest-yielding stocks from among the 100 largest stocks in the S&P- The 100 largest stocks in the S&P 500 Index comprise a much higher
percentage of the entire U.S. market than the 30 stocks in the Dow Jones
Industrial Average.
CHAPTER 9 Outperforming the Market 147
TABLE 9–2
S&P 500 Stocks Sorted by Dividend YieldDividendYield GeometricReturn ArithmeticReturn DeviationStandard Beta Excess Returnover CAPMHighest
High
Middle
Low
Lowest
S&P 50014.22%
13.11%
10.55%
9.79%
9.69%
11.13%15.71%
14.24%
11.71%
11.35%
12.20%
12.39%18.81%
16.22%
16.02%
18.21%
23.17%
16.52%0.9336
0.8559
0.9085
1.0460
1.2130
1.00003.78%
2.86%
-0.04%
-1.36%
-1.68%
0.00%(^13) John R. Dorfman, “Study of Industrial Averages Finds Stocks with High Dividends Are Big Win-
ners,”Wall Street Journal, August 11, 1988, p. C2.