The “Dogs of the Dow” is one of the oldest systematic investing strategies still around today. The idea is remarkably simple. At the beginning of each year, you take the 30 companies in the Dow Jones Industrial Average, select the 10 highest-yielding dividend stocks, invest equally across them, then repeat the process the following January by rebalancing into the new list.
The logic is straightforward. Because the Dow already consists of established, large-cap blue-chip companies with strong liquidity, screening for the highest dividend yields may help identify companies that have become temporarily undervalued while simultaneously boosting portfolio income.
By modern standards, the strategy feels somewhat primitive. Today’s investors have access to sophisticated factor models, smart beta indexes, and quantitative screens that incorporate dozens of variables beyond dividend yield alone. Still, its simplicity remains appealing, especially now that zero-commission trading makes annual rebalancing inexpensive.
If you like the general concept but would rather avoid buying and maintaining individual stocks yourself, there is an ETF built around a similar idea. The Invesco Dow Jones Industrial Average Dividend ETF (DJD) manages approximately $475 million in assets and offers several features that make it an interesting alternative to more mainstream dividend ETFs.
How Does DJD Work?
The traditional Dow weights companies according to their share price, an approach dating back to an era when stock indexes were calculated by hand using pencil and paper. While price weighting made practical sense more than a century ago, market-cap weighting has generally become the preferred methodology because it better reflects a company’s economic size.
DJD instead takes the 28 dividend-paying companies currently within the Dow Jones Industrial Average and weights them according to their trailing 12-month dividend yield, with the portfolio rebalanced semi-annually. The result is a portfolio that naturally tilts toward higher-yielding companies while remaining fully invested in one of the market’s highest-quality stock universes.
Today, DJD offers a 2.32% 30-day SEC yield, roughly one percentage point higher than the traditional Dow Jones Industrial Average. Distributions are paid quarterly. The valuation profile also looks attractive. The portfolio currently trades at a forward price-to-earnings ratio of 18.26 while maintaining excellent profitability, with a return on equity of 27.57%.
Is DJD Worth It?
The answer largely depends on the time period you’re examining. Interestingly, DJD has quietly outperformed the traditional price-weighted Dow over recent years, and charges just a 0.07% expense ratio, making it one of the least expensive smart-beta dividend ETFs available.
Over the trailing five-year period, DJD generated a 10.97% annualized total return at net asset value compared with 10.78% for the Dow Jones Industrial Average. Over the past three years, DJD returned 17.52% annually versus 17.10%, while over the trailing one-year period it gained 22.44% compared with 20.65%.
The dividend itself shouldn’t be viewed as free money. On every ex-dividend date, the ETF’s net asset value declines by roughly the amount of the distribution. Instead, the appeal comes from the portfolio construction. By emphasizing higher-yielding companies within an already high-quality blue-chip universe, DJD creates a modest value tilt that has historically worked.
For investors looking beyond the largest household-name dividend ETFs, that’s where DJD becomes interesting. Sometimes the smaller, less-publicized funds offer thoughtful index methodologies at extremely competitive fees. DJD is one of those cases, and if its value-oriented approach fits your investment philosophy, it deserves a place on the watch list.
Contact [email protected] for any questions or corrections.
Top Gaining Stocks
Top Losing Stocks