Dogs of the Dow 2025: A Smart Dividend Strategy for Australian Investors?

High-yield, low-fuss: the ‘Dogs of the Dow’ approach has been a favourite for investors seeking reliable dividends and blue-chip exposure. As 2025 brings new market twists, does this classic US strategy still have bite for Australians?

What Is the Dogs of the Dow Strategy?

Born in the 1990s and made famous by Michael O’Higgins, the Dogs of the Dow involves investing in the 10 highest-yielding stocks of the Dow Jones Industrial Average (DJIA) at the start of each year. The idea: these blue-chip laggards are undervalued, primed for a rebound, and offer fat dividends while you wait.

• How it works: Each January, pick the 10 Dow stocks with the highest dividend yields.

• Invest equal amounts in each.

• Hold for a year, then repeat the process with the new top 10.

The strategy’s appeal lies in its simplicity and focus on quality companies with a history of paying—and often raising—dividends. It’s also largely hands-off, requiring only annual rebalancing.

How Has the Dogs of the Dow Performed Lately?

Over the decades, the Dogs of the Dow has outperformed the broader Dow in many years, though not all. In 2023 and 2024, the Dogs trailed the red-hot tech stocks that powered the US market, but they still delivered steady income:

• 2023: The Dogs returned around 4.5% (including dividends), compared to the DJIA’s 13%. The underperformance was mainly due to laggards like Verizon and 3M, while Chevron and IBM held up well.

• 2024: The strategy rebounded, with the Dogs up 7% by November (versus the Dow’s 5%), as value stocks staged a comeback and dividend yields cushioned volatility.

2025 Outlook: With US interest rates expected to ease and global economic growth stabilising, high-yield blue chips are regaining favour. Dividend-paying stocks may shine if market leadership broadens beyond tech and growth shares.

Is There a Dogs of the Dow for Australian Investors?

While the original Dogs of the Dow is US-focused, the basic logic—buying strong, high-yielding blue chips—has universal appeal. Here’s how Aussie investors are adapting the strategy:

• ASX 20 Dogs: Some investors apply the method to the S&P/ASX 20, picking the 10 highest-yielding giants like Westpac, Telstra, and Woodside.

• ETFs and LICs: For a hands-off approach, consider ASX-listed dividend ETFs (like VHY or IHD) or LICs such as AFIC, which focus on yield and blue-chip stability.

• Franking credits: A unique Aussie twist—high-dividend stocks often come with franking credits, boosting after-tax returns for locals.

Be aware: the Dogs approach can lead to sector concentration (think banks and miners on the ASX) and doesn’t guarantee outperformance every year. But for those seeking income with blue-chip credentials, it’s a strategy that keeps earning loyal followers.

Risks and Modern Tweaks

No strategy is bulletproof. The Dogs of the Dow can underperform when value stocks lag growth, or if high yields signal trouble (a so-called ‘dividend trap’). Investors in 2025 should consider:

• Broader diversification: Mix in global or sector ETFs to avoid concentration risk.

• Regular reviews: Watch for dividend cuts or fundamental declines—don’t blindly hold a stock just for its yield.

• Tax efficiency: Take advantage of Australia’s franking credits, especially in superannuation accounts.

Recent updates to ASX reporting rules and new ETF launches in 2024 have made it easier than ever to track and invest in high-yield portfolios, whether you DIY or go passive.

Conclusion: Should You Run With the Dogs in 2025?

For income seekers and value hunters, the Dogs of the Dow remains a compelling, low-maintenance approach—whether you’re eyeing Wall Street or the ASX. With economic uncertainty lingering and dividends back in vogue, this tried-and-tested method deserves a second look in your 2025 playbook.