Betting on More Rate Cuts, Boomers Are Buying the 2026 Small Dogs of the Dow

"The Dogs of the Dow is a well-known strategy first published in 1991 by Michael O'Higgins. The plan aims to maximize investment returns by purchasing the 10 highest-yielding dividend stocks in the Dow Jones Industrial Average each year. The highest-yielding stocks are also the lowest-priced stocks in the venerable average, as the lower a stock (or bond) is priced, the higher the attached yield or coupon becomes."

"Since the turn of the century, the Dogs of the Dow have outperformed the overall Dow, and the Small Dogs of the Dow, which are the five highest-yielding stocks, even more so. The fact that investors are buying the highest-yielding companies in the venerable index improves the chances for total return gains. From 2000 through the early 2020s, the Dogs strategy posted strong average annual returns, generally beating the Dow by a few percentage points over the entire period."

"While the AI/data center rally has pushed stocks and indices to all-time highs, and it could still be a force in 2026, the reality is that the stock market, as measured by the S&P 500, is expensive. It trades at 31 times trailing earnings and 24 times forward earnings. With the midterm elections on the way this year, investors can expect some heightened volatility. So, the Small Dogs may be the perfect play for 2026 for growth and income investors wary of a major sell-off."

Purchasing the Dogs of the Dow involves selecting the ten highest-yielding dividend stocks in the Dow Jones Industrial Average each year, with Small Dogs selecting the top five. Lower-priced stocks produce higher yields, driving selection. Since 2000 the Dogs strategy generally outperformed the broader Dow, with Small Dogs outperforming further. The strategy struggled during the dot-com bust, the post-pandemic growth surge, and the 2025 AI-driven rally. The Dogs tend to protect capital in severe market downturns by holding stable, high-yielding blue-chip companies. High S&P 500 valuations and election-related volatility make Small Dogs attractive for growth and income in 2026.

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