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Cotten and Wilson Unleash the Dogs with Investment Strategy Research

The “Dogs of the Dow” is a value investing strategy that selects 10 stocks from the Dow Jones Industrial Average on the basis of dividend yield.  According to ongoing research by Turner College finance professor Brett Cotten, Turner College student Autumn Wilson and Alan Tidwell of the University of Alabama, this strategy became popular during the 1980s and continues to enjoy a similar popularity today.  The new study by Cotten and his coauthors examines a recent variation of the Dogs of the Dow strategy that is referred to as the “S&P Sector Dividend Dogs.” This new strategy variant applies the Dogs of the Dow to the S&P 500 by selecting the five highest dividend yielding companies from each of the 11 sectors in the index.  Preliminary findings from raw returns suggest that Sector Dividend Dogs outperformed the S&P 500 in 12 of the 18 years analyzed.  On an annual basis, Sector Dividend Dogs earned an average raw return that was about 7.7 percentage points higher than the return for the S&P 500.  Perhaps more importantly, raw returns data indicate that Sector Dividend Dogs outperformed Dogs of the Dow in 10 of the 18 years.  On an annual basis, Sector Dividend Dogs earned an average raw return that was about 3.4 percentage points higher than the return for Dogs of the Dow.  When the data are adjusted for systematic risk, Sector Dividend Dogs outperformed the S&P 500 in 13 of the 18 years analyzed, while it outperformed Dogs of the Dow in 15 of the 18 years analyzed.

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