“Dogs of the Dow” is a classic investment strategy. The idea is to find top-tier companies whose stocks are trading at unusually low prices, presumably for temporary reasons.
Low stock prices have the opposite effect on dividend yields, especially among stocks with long operating histories and rich cash flows. So, the quick and easy way to find these proven winners under price-slashing pressure is to start with the 30 Dow Jones Industrial Average (DJINDICES: ^DJI) components and sort them by their dividend yield. Buying the top results sets your portfolio up to benefit as the struggling giants get back on their feet.
Now, the Dogs of the Dow model isn’t perfect. Besides short-lived discounts on top stocks, it also finds some slow-moving cash machines whose dividend yields simply stay generous for years. In fact, that’s how I would classify all three of the Dow’s top dividend yields today.