Dogs of the Dow is a strategy that buys the 10 Dow Jones Industrial Average (DJIA) stocks with the highest dividend yield at the beginning of the year. The portfolio is adjusted at the beginning of each year to include the 10 highest yielding stocks. Michael O’ Higgins first popularized the strategy in his book, “Beating the Dow,” published in 1991. O’Higgins showed that over the 17-year period from 1973 to 1989, his Dogs strategy averaged a return of 17.9% annually, compared to 11.1% for the Dow. You can find the top ten highest yielding stocks in dogsofthedow.com. There are variations to Dogs of the Dow, like only select five companies with the lowest stock price from the 10 highest yielding stocks (the Dogs). This strategy is called Small Dogs of the Dow. However, I think that selecting based on price is a not a good strategy, because low price does not mean that they are undervalued, although low price means more liquid. I prefer using P/E and PEG for the top 10 highest yielding stocks (I haven’t tested this strategy). You can create your own strategy by choosing not only the 10 highest yielding stocks, but maybe top 20, or top 30. Then select using P/E or PEG or even price from that list. You can check the result using historical data. Do your homework and you will be rewarded.
CAN SLIM is a growth stock investment strategy developed by William O’Neill, the co-founder of “Investor Business Dailly” / IBD. He described his strategy in the book How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition
. There are countless examples of this strategy’s success. The goal of the strategy is to discover leading stocks before they make major price advance. There are 7 components of CAN SLIM, which are:
C = Current earning per share. Current earning per share (EPS) must be up no less than 18-20% from the same period last year. For example, a company’s EPS for this year’s January-March must grow minimum 18%-20% from the same three month last year.
A = Annual earning. They should up 25% or more in each of the last three years.
N = New. The company should either be under new management, have new product or service. It also must have new stock price high.
S = Supply and demand. Find company with small outstanding stock.
L = Leader. Find a company that is leading the way or market leader. A stock’s Relative Price Strength Rating should be 80 or higher.
I = Institutioal sponsorship. The company must have institutioanal sponsorship like mutual fund companies.
M = Market trend. You must buy when the trend is up. Like increasing volume, and stock index going up.
Besides the seven characteristic, you also should cut all losses at no more than 7% or 8% below the buy price, to minimize losses.
Benjamin Graham is known as the father of value investing. His screener has been used by many investor, mostly with slight modification. His student Warren Buffet even became the second richest man on earth. In his book, “Security analysis”, he stated that “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.” Graham’s screener are:
1. PE of the stock has to be less than the inverse of the yield on AAA Corporate Bonds.
2. PE of the stock has to less than 40% of the average PE over the last 5 years.
3. Dividend Yield > Two-thirds of the AAA Corporate Bond Yield.
4. Price < Two-thirds of Book Value.
5. Price < Two-thirds of Net Current Assets.
6. Debt-Equity Ratio (Book Value) has to be less than one.
7. Current Assets > Twice Current Liabilities.
8. Debt < Twice Net Current Assets.
9. Historical Growth in EPS (over last 10 years) > 7%.
10. No more than two years of negative earnings over the previous ten years.
From the above screener, I conclude that you must choose stocks, which have low price /cheap (screener 1, 2, 3, 4, 5), represents healthy company (6, 7, 8), have growth (9), and have good earning (10). So by looking at those conclusion you can make your own screener.