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miércoles, 17 de diciembre de 2014

Investment Strategy "Dogs of the Dow"

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The "Dogs of the Dow" is an investment strategy where each year the investor buy the 10 stocks in the Dow Jones Industrial Average, which dividend is the largest fraction of the price; ie the 10 stocks in the Dow Jones with the highest dividend yield.

The rationale for the strategy of the "Dogs of the Dow" is that blue chip stocks do not alter its dividend to reflect trading conditions. The dividend is a measure of the average value of the company and the stock price, however, fluctuates throughout the economic cycle. This means that companies with a high dividend yield, which means high dividend in relation to share prices, are near the end of their downward cycle and is likely to see their stocke prices rise faster than companies with low dividend yield . Under this model, an investor annually invests in high-performance businesses to outperform the overall market. The logic behind this is that a high dividend yield suggests both that the stock is oversold and that the board believes in the future of the company and is willing to support it by paying a relatively high dividend. Investors are expected to benefit from increased capital and dividends.

This strategy works? Research shows that the strategy produced excellent results for many years. However, since 1991, the strategy of "The Dogs of the Dow" did not give better results than investing in the entire market. However, the strategy produced a better performance compared to the S&P 500 in the period between 2009-2013. With that said, the investment in shares of Dow Jones is considered a safe investment that should produce dividends and capital gains if you have a long term vision.




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