THE TALE OF THE “DOGS OF THE DOW” IN INDIA

A Dividend Hunter’s Journey

- By Krishna Kumar Mishra

Once upon a time, in the bustling world of the Indian stock market, there was a strategy whispered among investors—a strategy that promised to uncover hidden gems in the form of high-dividend-yielding stocks. This strategy, known as the “Dogs of the Dow,” had travelled far and wide, from the skyscrapers of Wall Street to the trading floors of Mumbai. Its allure? A simple yet powerful idea: invest in the top dividend-paying stocks of the market, hold them for a year, and watch them outperform the broader index.

But did this strategy, born in the West, hold its magic in the vibrant and ever-evolving Indian market? This is the story of how the “Dogs of the Dow” fared in India, and what it means for dividend hunters like you.

This approach involves selecting the top 10 highest dividend-yielding stocks from the Dow Jones Industrial Average (DJIA) at the beginning of each year and holding them for 12 months. The idea was popularized by Michael O'Higgins in his 1991 book Beating the Dow, and since then, it has been extensively studied and debated among investors worldwide.

While this strategy originated in the U.S. markets, its principles have been tested across different economies, including India. A 2017 study published in the SCMS Journal of Indian Management examined the “Dogs of the Dow” strategy within the Indian stock market, comparing its performance against the Sensex from 2006 to 2016. The findings were revealing:

• The Top 10 Dogs portfolio delivered an average annual return of 20.1 per cent, significantly outperforming the Sensex, which yielded only 12.2 per cent.

• The Small Dogs subset, comprising the five lowest-priced stocks from the Top 10, also outperformed, achieving an average annual return of 16%.

• However, the Top 5 Dogs (a more concentrated approach) underperformed, delivering a modest 9.8 per cent return.