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An easy to implement investment strategy is suitably named the Dogs of the Dow. The basic strategy is implemented by purchasing the ten companies in the Dow (Dow Jones Industrial Average) with the highest yield. The Dow Jones Industrial Average is made of 30 stocks that have been selected to serve as a benchmark for the economy. The Dogs of the Dow strategy as the name implies assumes that the companies being purchased for the year have been beaten up by Wall Street and are therefore under priced as reflected by the high yield. Stocks sometimes pay a higher yield during difficult times to make ownership of their stock more appealing. Be aware that these same companies sometimes lower the dividend and this usually has a negative effect on the stock price.
It is important to be consistent with the date each year for rebalancing the portfolio. For example if you begin on January 2 of each year use the closest trading date the following year to sell the stocks that no longer meet the criteria and purchase the new companies that do meet the criteria. This is only to be done once a year which can take discipline. During this time at least some of the stocks will probably increase in value. In the meantime the dividend is being credited to your account.
Be sure to allocate an equal amount of money to each of the ten companies. This means you will own a different amount of shares of each company. An excellent link for researching the Dogs of the Dow further is dogsofthedow.com. Click on “Dog Years” at the bottom to review annual results. Notice that performance is inconsistent from year to year therefore this strategy is suited for long term investments over at least several years. Numerous versions of the Dogs of the Dow exists such as buying a fewer number of stocks. Other strategies factor in the stock’s price relative to the other 30 companies such as the lowest priced stocks.
You may want to hold the stocks one year and a day to qualify for a long term capital gain on your taxes if you have a profit. You can check with your CPA. This strategy is suitable for taxable accounts due to the lower tax rate on long term capital gains. Many mutual funds offer this strategy. I would personally not pay a fee for this simple strategy.