Dogs of the Dow: A Nifty Strategy for Potentially Increasing Yield in Your Living Trust

Increasing the yield - while maintaining an appropriate allocation - is often a difficult trick for managers of living trusts. But a tool that you can pull out your kit is the "Dogs of the Dow," a contrarian strategy is designed to increase profitability and growth potential.

First put forward by Michael O'Higgins in his 1991 book, "Beating the Dow", the strategy itself is the model of simplicity. You select the 10 Dow stocks with the highest dividend yield and a year later rebalancing of the new 10 with the highest yield.

The theory is that the DJIA is made of high quality issues, and the highest yield securities in which quality issues that have increased their dividend for share prices depressed. While waiting for the stocks to favor [the growth] to get back an investor higher than normal income [increased revenue] harvesting.

Looking back to 2004, the average yield for the DJIA was around 2%. The "Dogs," from the beginning of the year, had a yield of 3.61%. At the end of the year, the total return (including dividends) of the dogs were 4.5%. The Dow Industrials had a return of 5.31% over the same period. (For a complete list of the 2004 "Dogs of the Dow 'email me at

For those wondering what the worst performing stocks in the dogs were in 2004, look no further than Merck, who turned in a decrease of 30%, and General Motors, which has fallen by 25%. Risk is inherent in all investments and this is no exception.

Studies are inconclusive as to compare the overall efficiency of the entire Dow with the total revenue of the dogs over long periods of time. Both seem stripes from top or bottom performance without any discernible reason. Since this is an ongoing debate between proponents and critics, will the topic. A quick browse of the Internet all the reading you might want to

Regardless of the debate, I do not think this changes the use of the "Dogs of the Dow" in a trust which is looking for increased yield, while still seeking capital. The simple alternative to income is to increase your bond allocation, but that does not address the capital growth aspect found in stock.

Yes, there is a balance of the proceeds of the bonds, but a trustee trying to meet the needs of the beneficiaries of income and balance should all know about these considerations.

A few remaining points: 

Although it is common that this strategy begin and end on a calendar, it is not necessary. Efficiency, of course, will vary depending on the data used. MSN Money is a good internet resource for the current list. Type "Power Searches" in the search box MSN and go to "Dogs of the Dow."

You should also know that various offshoots of the dogs of the Dow have come as late forward.

These include what the Motley Fool's "Foolish Four Strategy," and other variations that either contract or expand the base of the dogs has called. 10 shares

Of course, it is important to remember that investment returns and principal value will fluctuate so that it is always possible to lose money. No strategy may need to avoid. For success or failure

Glenn (? Chip?) Dahlke, a senior contributor to the Living Trust Network, has 28 years in the investment business. He is a Registered Representative of Linsco / Private Ledger and a principal with Dahlke Financial Group. He is licensed to securities transactions with persons who are residents of the following states: CA. CT, FL, GA, IL. MA, MD. ME, MI. NC, NH, NJ, NY.OR, PA, RI, VA, VT, WY.