Dogs of the STI: A simple Investment Strategy to beat the markets

The “Dogs of the Dow” investment strategy aims to beat the index by looking for cheap blue chip stocks with higher yields relative to their peers. It is simple to execute – just buy and hold the top 10 DJIA stocks, ranked by their dividend yields. This strategy has been around for over 30 years.

It used to be popular, but this strategy has since faded away for more contemporary ones. However, it does not mean that the strategy is inferior; it is just not in vogue.

The original “Dogs of the Dow” strategy

The “Dogs of the Dow” strategy centres on the 30 blue chips in the Dow Jones Industrial Average (DJIA) index.

Most investors will find comfort in the well-known, and familiar names as these are the most important enterprises in the country. These blue chip companies are believed to be ‘safer’ because they are expected to weather market and economic downturns better than smaller companies.

The resilience suggests that any share price corrections to these blue chip stocks are opportunities for investors. They can buy at cheaper prices and be rewarded with higher prices when the market or economy recovers.

Key Indicator used: dividend yield

Dividend yield can be used as a crude valuation metric because the stock price should be low for the dividend to be high. There’s this inverse relationship between price yield:

It is essentially a value investing approach betting on the mean reversion effect. This means buying at a cheap price (value) and believing what goes down will come up eventually (mean reversion).

According to the Dogs of the Dow website, the performance of this strategy has performed better than DJIA and S&P 500 indices over the same period of time (ending Dec 2018):

Annualised returns	5 Year	10 year	2000-2018
Dogs of the Dow	13.4%	15.9%	9.5%
DJIA	13.3%	13.9%	8.4%
S&P 500	12.5%	14.2%	7.7%

However, the 2019 figures from the website showed that the strategy underperformed. While it is normal for a strategy to underperform in some years, what’s important is that it outperforms other indices over a long period.

At this point, you might be wondering how it has performed given the bearish market sentiments. Well, it has not been spared by macroeconomic impacts. Here’s the Year-to-Date performance, as of 30 Jan 2023:

	YTD Returns (as of 30 Jan 2023)	YTD Yields (as of 30 Jan 2023)
Dogs of the Dow	1.1%	4.47%
DJIA	1.7%	2.56%
S&P 500	5.06%	1.64%

Dogs of the Dow is about buying and holding the top 10 DJIA stocks, ranked by their dividend yields. It is important to note that they must be updated once a year.

Here is a current snapshot of the current 10 Dogs of the Dow stocks as of 30 Jan 2023:

Company	Symbol	Price (USD)	Yield
Verizon	VZ	41.05	6.36%
Dow	DOW	57.95	4.83%
Intel	INTC	28.04	5.21%
Walgreens	WBA	36.53	5.26%
3M	MMM	112.58	5.29%
IBM	IBM	135.30	4.88%
Amgen	AMGN	251.59	3.39%
Cisco	CSCO	48.33	3.15%
Chevron	CVX	174.34	3.46%
JP Morgan Chase	JPM	139.13	2.88%

Dogs of the STI

I got the idea of applying the Dogs of the Dow to the Straits Times Index (STI). It is highly applicable considering that both DJIA and STI have 30 stocks each. Furthermore, STI has plenty of dividend-yielding stocks.

There are some differences, though.

i) Dividend taxation

First, there’s no dividend taxation in Singapore. In contrast, there’s a 30% dividend tax in the U.S. This means a dividend strategy works better for Singapore stocks. Here, you get to keep all the dividends.

ii) REITs

Second, there are a handful of REITs in the STI, and their dividend yields are relatively higher than the non-REIT counters. This is because REITs are required to distribute at least 90% of their rental income to unitholders if they want to enjoy tax incentives. Hence, I expect REITs will be a mainstay in the Dogs of the STI portfolio.

With the help of PyInvesting, I managed to conduct a backtest on this strategy. It beat the STI convincingly, given that the performance of Singapore stocks has been uninspiring for the past ten years.

For reference, let us compare their performance for the period between 2008 till date. The Dogs of the STI returned 7.4% per year. This is in comparison to STI ETF (SGX: ES3), with a return of 0.8% per year. That’s a 9x difference in performance!

10 Dogs of the STI stocks

(Accurate as of 30 Jan 2023)

Stock	Ticker	Dividend Yield
Thai Beverage	Y92	73.0%
Yangzijiang Shipbuilding	BS6	15.6%
SATS Ltd	S58	6.7%
Frasers Logistics	BUOU	5.5%
Dairy Farm	D01	4.9%
Hongkong Land	H78	4.9%
ComfortDelGro Corporation	C52	2.9%
DBS Group	D05	2.7%
Singapore Telecommunications	Z74	2.7%
Jardine Cycle	C07	1.8%

These are very familiar names for Singapore stock investors, and their yields are higher than the overall STI. Hence, I think most investors will have no issues implementing a portfolio like this.

For the more ambitious dividend investors who want to retire early, Chris Ng shares his refined dividend investing strategy. It allowed him to retire at 39, take a law degree, and provide for his children.

A simple yet effective strategy to beat the market

The Dogs of the STI is a simple strategy:

1. buy the top 10 STI stocks by dividend yield and review the ranking each year.
2. Sell those that fall off the scale and replace them with those whose yields have gone up significantly.

It is essentially a value investing strategy where you buy low and sell high. In the meantime, you collect dividends.

I’ve recorded a quick video masterclass here:

Higher returns vs. consistent returns

Some would argue the returns are not as high as U.S. stocks. While this is true, investing is not always about getting the highest return. It is also about having the ability and putting in the effort required to achieve the returns.

It is also important to remember that markets change. What is performing well today may not do so well in the future. Therefore, long term and sustainable returns matter more.

Look to the long term

I think this would be a good strategy for those who want to invest their CPF monies in stocks. It should comfortably beat the CPF OA interest of 2.5%. That said, just be aware that the strategy can still lose money in some years. Nonetheless, it should do well over the long term.

Final thoughts

Dogs of the STI is one of the simplest stock investing strategies out there, and most investors shouldn’t have a problem implementing it.

Do you like the strategy? Share your thoughts in the comments below!

For the more ambitious dividend investors who want to retire early, join Chris Ng here as he shares a refined dividend investing strategy that allowed him to retire at 39, take a law degree, and provide for his children. You should also check out PyInvesting if you would like to backtest any strategy.