Does the ‘Dogs of the Dow’ strategy work better in blue chips?

Abstract

The ‘Dogs of the Dow’ strategy is a dividend-yield trading strategy, which invests in stocks that give the highest dividend. This article examines whether the ‘Dogs of the Dow’ strategy is profitable in the Hong Kong stock market. Using the data from 1992 to 2007, we show that a portfolio consisting of the top dividend-yielding stocks generates a negative return for investors, whereas a portfolio with top dividend-yielding Hang Seng Index constituent stocks can fetch a positive return of about 8% per year. The result is in agreement with that of McQueen et al. (1997).

Acknowledgement

We thank Pak-Ho Leung for able research assistance. All remaining errors are ours.

Notes

¹ This dividend-yield strategy is first mentioned in the Wall Street Journal by a financial analyst John Slatter, who finds that the average annual return from 1972 to 1987 for the high-yield stocks is 18.4%, compared with 10.8% for the Dow. The strategy is popularized by O'Higgins and Downes (1992).