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Real Time Insight

One investing strategy that you never hear that much about anymore is the ‘Dogs of the Dow’ technique. This approach takes the ten highest yielding DJIA stocks at the close of the year’s last trading day, and equally invests in each of them for the following year.

In addition to being a great strategy for obtaining a high level of income, the method looks to invest in industries that are at the bottom of their business cycle. Generally when this happens, dividend yields are higher than what investors see in other corners of the market (due to depressed stock prices), hence the focus on yield as opposed to PEs or similar value metrics.  

Performance has been middle of the road for the strategy, as it has generally outperformed the broad DJIA and even the S&P 500, but its performance in bear markets and immediately following the recession has been questionable. This has left many to wonder how relevant the Dogs of the Dow are in this type of market environment, but for those curious we have 2013’s list below:

 

Symbol

Yield (on 12/31)

(T - Analyst Report)

5.3%

(VZ - Analyst Report)

4.8%

(INTC - Analyst Report)

4.4%

(MRK - Analyst Report)

4.2%

(PFE - Analyst Report)

3.8%

DD

3.8%

HPQ

3.7%

GE

3.6%

MCD

3.5%

JNJ

3.5%

While there are some usual suspects on this list—like the telecoms and big pharma companies—there is a bit of turnover from previous years as well. Furthermore, investors should note that of the ten, all currently have a Zacks Rank of 3 or ‘Hold’ except for GE which has a Zacks Rank of 4 or ‘Sell’.  

What do you think of this year’s list? Will you be investing in this year’s versions of the Dogs of the Dow?

Or if you prefer, which of the above do you think will be 2013’s ‘top dog’ (best performer) from the group? Personally, I like DD. Oil prices have been moderate which should help chemical manufacturers like DuPont, while the stock appears to be cycling off of its lows as well.

If that wasn’t enough, the stock has a very favorable Earnings ESP of 10%, suggesting that it could start the year with an earnings beat when it reports in a few weeks time…

What about you? What do you think will be this year’s top dog?

Let us know in the comments below!

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