Most investors have likely heard of the Dogs of the Dow Strategy, which was popularized in 1991 by Michael O’Higgins. The theory behind the Dogs of the Dow is that at the beginning of every year you should adjust your portfolio to contain the ten highest dividend yielding stocks in the Dow Jones Industrial Average. Throughout the year you do absolutely nothing other than sit back and see how those stocks do and watch the dividend payouts come in. The method is a contrarian investment strategy that seeks to buy up out of favor stocks and profit from their high dividend payouts and possible price appreciation.

How has the Dogs of the Dow strategy performed over time?  In a broad time period between 1957 and 2003 the Dogs of the Dow averaged an annual return of 14.3% compared to the Dow and its annual average return of 11%, for a 3.3% out performance.  In fact between the 1970′s and 1990′s the Dogs of the Dow outperformed the Dow by more than 5% on average, but in recent years the dogs haven’t performed quite as well. Over time it seems that the performance of the Dogs of the Dow is quite good, but in short time periods there is no way of telling whether they will out perform or under perform.

If you an average investor out there looking to put your money in the stock market you should consider using the Dogs of the Dow strategy only if you fit the mold of an investor who is a contrarian and doesn’t want an actively managed portfolio. The perfect candidate for using this system is an investor who wishes to invest their money without the help of a stock broker, but doesn’t want it to be complicated or time consuming. The strategy isn’t an exciting one, but it is one that could be a viable method of earning solid income over the long run.