The Dogs of the Dow strategy says to buy the ten highest yielding Dow stocks at the start of each year. So far in 2009, the strategy has underperformed the Dow as a whole by quite a wide margin. The ten Dogs of the Dow stocks in 2009 were BAC, GE, PFE, DD, AA, T, VZ, MRK, JPM, and KFT. The average price change for these ten stocks so far this year has been 11.19%. The average change for all stocks in the Dow has been 23.07%, while the average change for the 20 non-Dog stocks has been 29.01%. This isn't just a one year outlier either, as the Dogs of the Dow strategy struggled in 2008 as well.
As it stands now, four Dogs from last year will be replaced with new Dogs in 2010. BAC, GE, JPM, and AA all cut their dividends in 2009, so they now have some of the smallest yields in the index. The new names to enter the Dogs portfolio would be MCD, CVX, HD, and INTC. Yep, Intel actually has one of the highest yields in the Dow at the moment!
Note: Nikolaj Gammeltoft with Bloomberg News wrote an article using our "Dogs of the Dow" work today. Thanks Nikolaj!