Dogs of the Dow: No Bow-Wow Here.
An old investment strategy, the "Dogs of the Dow" is based on selecting the ten stocks in the Dow Jones Industrial Average with the highest dividend yield. Following several unsuccessful years, the Dogs strategy has worked well the past two years, outperforming both the Dow Jones Industrial Index (DJIA) and S&P 500 (SPX).
According to Credit Suisse, the Dog strategy performed well in the last bear market during 2000-03, when the market was dealing with the aftermath of the tech bubble. The worst stretch of performance was from 2004 to 2009, in which it the strategy outperformed just once in 2006.
In 2010, the Dogs strategy significantly outpaced the DJIA and SPX with a gain of 20.5% versus 14.1% and 15.1%, respectively. Year-to-date, the 2011 Dogs have gained 9.5%, meanwhile the DJIA is up 5.2% and the SPX is down 0.2%. The best performing 2011 Dog stocks are: McDonald's (MCD) up nearly 28%, Intel (INTC) up almost 19% and Pfizer (PFE) up 17.4%. Year to date, the 2011 underperforming Dogs include: DuPont (DD) down 9.7%, AT&T (T) off 1.2% and Merck (MRK) down 1.0%.
For 2012, there are currently 14 Dog candidates (yielding at least 3.0%). If we raise the threshold, there are still four companies yielding over 4.0%: AT&T at 6.0%, Verizon (VZ) at 5.3%, Merck at 4.8% and Pfizer at 5.3%. These four companies were all 2011 Dogs and likely to make the 2012 Dogs list.
Canaccord Genuity Inc. is a global investment banking and institutional brokerage firm. Their website is www.canaccordgenuity.com.
For disclosures of any equities mentioned here please see: http://www.canaccordgenuity.com/en/ODD/pages/disclosures.aspx