Dividend Aristocrats vs Dogs Of The Dow: Which Investing Strategy Is Better?

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Dividend investing is a popular strategy among those looking to earn income from their investment portfolio. Instead of investing in high-growth stocks, money is used to buy equity in well-established and highly profitable companies. While some are still growing each year, meaning sales are increasing each quarter, many have achieved market saturation, meaning sales are relatively flat. This is when a company has become so large that they have captured most of the demand in the market for its product or service. For example, it’s been difficult for AT&T and Verizon to grow their wireless subscriber base due to their size and existing dominance in the cellular market.

Within the realm of dividend investing, there are countless more specific strategies that are followed. Today, we will be comparing two side by side, which are the “Dog of the Dow” versus “Dividend Aristocrats.” First of all, let’s go ahead and define both.

Dog of the Dow

The first strategy is related to a popular market index known as the Dow Jones Industrial Average. This is a group of 30 stocks viewed as the titans in their industries and leaders in business. The stocks within this list are relatively consistent, but they change around every six to twelve months. This is based on changes in global trends, leading to new companies becoming market leaders. As a result, others fall out of favor. Most recently, the following stocks were booted from the Dow in August 2020: Exxon Mobil, Pfizer, and Raytheon Technologies. The stocks that took their place as new additions were Amgen, Honeywell, and Salesforce.

Dog of the Dow refers to a strategy of rotating your money into the 10 of the 30 worst-performing stocks on the Dow at the end of the calendar year. The idea here is that these should be solid investments since they are included in this prestigious index. Additionally, the dividend yield on these would typically be higher based on the lower share price.

If you were to theoretically implement this strategy, you would be rebalancing your portfolio each calendar year. That means you would be changing up the stocks within your portfolio based on which stocks were the worst performers.

In 2022, the dogs of the Dow were DOW, Verizon, IBM, Chevron, Walgreens, Merck, Amgen, 3M, Coca-Cola, and Intel.

Dividend Aristocrats

This strategy is related to a group of stocks that have consistently paid dividends and have grown every year for at least 25 years. As you can imagine, it’s not easy to remain on this list with the ups and downs in the economy over many decades. Like with the Dow, the stocks on this list change once in a while. This is based on new companies breaking the necessary 25-year growth streak, or existing ones on the list being unable to grow dividends, thus interrupting their growth streak.

Investing in dividend aristocrats means restricting yourself to this list of coveted income stocks. There are about 60 companies on this list, including some of the companies on the Dow. Typically, a dividend investor will start with this list of stocks and then conduct further research.

Which Dividend Investing Strategy Is Better?

So, which dividend investing strategy is better? Keep in mind that there is no investing strategy that works 100% of the time. If there was, someone could just repeat it over and over again and become infinitely wealthy. As such, neither one should be followed blindly.

The idea of plowing your money into the 10 worst-performing stocks in the Dow will have mixed results at best. Sure, some years you’ll pick winners. However, if you choose the wrong year to implement this strategy, you could end up buying into a stock on its way out, soon to be removed from the Dow. This is usually a result of changing trends or unfavorable business conditions.

A better strategy is to consider what stocks are on the Dow and which ones are on the list of dividend aristocrats. You could even comb through the dogs of the Dow looking for a hidden gem. From there, pick a few of your favorites to conduct further research.

How You Can Get Started With Investing

Whether you’re interested in the Dog of the Dow or the Dividend Aristocrats strategy, you’ll definitely need to sign up for a trading platform to get started. There are several great platforms to choose from such as Robinhood, Stash, and Public. My personal favorite is Robinhood for its user-friendly and simple-to-understand interface. If you want to start now, check out my resource on the 60+ dividend stocks. It’s also important to note that either strategy involves determining your personal risk tolerance, your short-term and long-term financial goals, as well as timing in the market – happy investing!

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