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But Boudoukh and three other academics write in On the Importance of Measuring Dividend Payout Yield that it would be better to include net share repurchases in the selection process. Specifically, one should buy the Dow stocks with the highest “net payout yields,” which are based on the dollar amounts for dividends plus repurchases less new issues.

The utility of the original Dogs-of-the-Dow approach has waned over the past decade or so partly because of the shift toward returning capital to shareholders via share repurchases, say Boudoukh et al. The net-payout-yield picks up on this shift and conveys more information.

http://usmarket.seekingalpha.com/article/30013

Payout Yield portfolio – compiled by Mebane Faber, who writes the World Beta blog

This portfolio is similar to the “Dogs of the Dow” strategy. The formula adds the $ spent on share repurchases to the $ spent on dividends to give a more complete view of companies returning cash to shareholders.

Results from 1983-2003 for this strategy returned:
DOW stocks: 13.4%
DOGS of DOW: 16.2%
Payout Yield: 19.1%

Date updated: 02-22-2007

http://stockpickr.com/port/Payout-Yield/

I thought this explanation of the why the Dogs of the Dow still works was useful.

Time For The Dogs Of The Dow

the Dow is an obsolete stock index which consists largely of supersized turkeys with little growth potential, but the Dogs of the Dow still works. Why? It incorporates several timeless principles for successful investing: everything else being equal, stocks which pay good dividends will outperform those which do not; it pays to invest in stocks which are out of favor; the end of December is a good time to pick up bargains due to year-end tax-loss selling; and over time, stocks provide an inflation-adjusted average annual return of 7%

http://usmarket.seekingalpha.com/article/21613

Learn more…

On the Importance of Payout Yield:Implications for Empirical Asset Pricing
http://www.faculty.idc.ac.il/kobi/repurchase.pdf

Mebane Faber’s World Beta blog
http://worldbeta.blogspot.com/

Week Four: Dogs Of The Dow
http://usmarket.seekingalpha.com/article/22932

Time For The Dogs Of The Dow
http://usmarket.seekingalpha.com/article/21613

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