Dogs of the Dow is a strategy popularized by Michael O’Higgins where the ten highest yielding stocks in the Dow Jones Industrials Average are selected at the end of the each calendar year. Higher Yields typically works as a contrarian indicator as a way to identify bargains where the stock price has gotten low in relation to the dividend. Managements are reluctant to cut dividends, which are a sacred cow in the US, and would do so only if the situation is really bad.
Furthermore most of the blue chip stocks in the Dow Jones Industrials have similar price performances over time. By identifying the highest yielding securities, the strategy expects that it would generate the highest total returns over time, if price performance were similar.
The strategy has performed below average over the past 13 year with 2008 being a major blow for its supporters:
Dogs of Dow
Let’s hope that 2009 would be a good year for Dogs of the Dow Investors. You could find the list for 2009 below. There were four new stocks added to the list – Bank of America, Alcoa, Merck and Kraft.
Dogs of Dow
For more information on Dogs of the Dow strategy, visit http://www.dogsofthedow.com/
Disclaimer: Author is long GE.