The Dow Jones Industrials (DJINDICES:^DJI) have been on fire so far in 2017, setting new all-time records on more than a dozen occasions in the first two months of the year and climbing above the 21,000 level for the first time on March 1. Yet rather than investing in the entire Dow, some dividend investors follow a strategy known as the Dogs of the Dow, which involves picking just a handful of the components that make up the venerable average. Two months in and after a huge rally, now's a good time to check in and see how the Dogs of the Dow are faring and what explains their performance in 2017.

How the Dogs of the Dow are faring in 2017

To find out which stocks make up the Dogs of the Dow, you just have to do one simple thing. Pick the 10 stocks as of the end of 2016 that had the highest dividend yields, and then buy shares of them in equal dollar amounts. Then, hold onto all 10 stocks throughout the year.

So far in 2017, the Dogs of the Dow are lagging slightly behind the Dow overall. On average, the Dogs are up 5%, compared to a nearly 7% return for the unmodified Dow.

The biggest reason for the poor performance from the Dogs of the Dow is that three of the 10 stocks the strategy tracks have lost ground in 2017, compared to just five overall for the Dow 30. The biggest loser has been ExxonMobil (NYSE:XOM), which has had to deal with renewed concerns about whether the energy markets can keep clawing back more of the ground that they lost during the plunge in crude oil prices in 2015. Chevron (NYSE:CVX) has also produced year-to-date losses for similar reasons. In addition, Verizon (NYSE:VZ) has had to deal with new price-war considerations, including the potential merger of its No. 3 and No. 4 rivals in the U.S. wireless telecom industry, and is also reacting adversely to threats of higher interest rates.

Another reason for underperformance is that the Dogs didn't get to include the year's best performer so far. Apple (NASDAQ:AAPL) has jumped more than 20%, carrying forward momentum from 2016 as investors have regained confidence in the company's long-term prospects. Even though some investors worry that a lack of innovative new products in Apple's visible pipeline pose a long-term threat to the growth of the business, the company has still been able to use the iPhone's success and the loyalty toward its ecosystem to drive business.

Don't count the Dogs out

That said, the Dogs of the Dow have had their share of success stories. Cisco Systems and Merck have risen by double-digit percentages, but the most important winner so far in 2017 has been Boeing (NYSE:BA), which has climbed 18% since the beginning of the year. Calls from the Trump administration to increase defense spending have helped push the aerospace and defense giant higher, and a strong commercial aerospace market continues to make investors optimistic about Boeing. Yet even here, the Dogs of the Dow haven't benefited as much as the Dow 30, because Boeing's high share price has produced outsized gains for the average but not for the equal-weighted Dogs.

More importantly, it's still early in the year. The Dogs of the Dow tend to move in a manner similar to a value-based strategy, rewarding stocks that have lagged in the past. That's very much not the way that the stock market has acted lately, instead riding positive momentum from late 2016 and continuing to reward earlier winners rather than creating a rotation of new gainers.

In particular, the Dogs include several stocks that could benefit greatly from anticipated growth in certain sectors. Caterpillar in particular is well poised to boost its profits in North America if construction and infrastructure activity rise going forward. Pharmaceutical stocks have gotten hit hard recently, but if healthcare reform avoids major pressure to their profit, then the shares could rebound and help the Dogs to a greater extent than they would the overall Dow 30.

The Dogs of the Dow are lagging slightly behind the overall Dow, but that doesn't mean that the strategy is a bad one to use. A lot can happen over the rest of 2017, and you should watch closely to see if the Dogs of the Dow can catch up and surpass the Dow 30 in the months to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.