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Several articles, both here on Seeking Alpha and elsewhere, have recently discussed the “Dogs of the Dow” strategy, which calls for buying the 10 highest yielding companies in the Dow Jones Industrial Average at the end of the year. I decided to compare the Dogs (along with the rest of the components in that index) to my listing of Dividend Champions/Contenders/Challengers, which can be found here. (Note that the November 30 listing will be replaced after Friday's market close.) My thinking was that investors might want to consider not just the current yield, but also the history of each company increasing its dividend on an annual basis, as well as the payout ratio for each company.

The data below is from Yahoo, with the exception of the number of years of dividend increases. The projected Dogs are in bold, although it's worth noting that slight changes in the last few trading days of 2010 could easily cause Intel (NASDAQ:INTC) or Procter & Gamble (NYSE:PG) to take the place of General Electric (NYSE:GE) among the Dogs.

Symbol

Name

12/28

Div/Shr

Yield

EPS (ttm)

P/R

No/Yrs

T

AT&T Inc.

29.23

1.72

5.88

3.68

46.74

27

VZ

Verizon Communications

35.62

1.95

5.47

0.17

NM

6

PFE

Pfizer, Inc.

17.59

0.80

4.55

0.76

105.26

0

MRK

Merck & Company

36.20

1.52

4.20

2.59

58.69

0

KFT

Kraft Foods Inc.

31.86

1.16

3.64

2.59

44.79

0

JNJ

Johnson & Johnson

62.05

2.16

3.48

4.87

44.35

48

DD

E.I. du Pont de Nemours

49.82

1.64

3.29

3.38

48.52

0

MCD

McDonald's Corp.

76.43

2.44

3.19

4.53

53.86

34

CVX

Chevron Corp.

91.19

2.88

3.16

8.37

34.41

23

GE

General Electric

18.32

0.56

3.06

0.92

60.87

0

INTC

Intel Corporation

20.88

0.63

3.02

1.85

34.05

7

PG

Procter & Gamble

64.76

1.93

2.98

4.06

47.54

54

HD

Home Depot, Inc.

35.09

0.95

2.71

1.85

51.35

1

KO

Coca-Cola Company

65.36

1.76

2.69

3.25

54.15

48

BA

Boeing Company

64.86

1.68

2.59

4.61

36.44

0

TRV

Travelers Companies

55.66

1.44

2.59

7.10

20.28

6

MMM

3M Company

86.74

2.10

2.42

5.67

37.04

52

XOM

Exxon Mobil Corp.

73.42

1.76

2.40

5.65

31.15

28

MSFT

Microsoft Corporation

28.01

0.64

2.28

2.32

27.59

5

WMT

Wal-Mart Stores

53.74

1.21

2.25

4.04

29.95

36

UTX

United Technologies

79.29

1.70

2.14

4.58

37.12

16

CAT

Caterpillar, Inc.

93.69

1.76

1.88

3.04

57.89

17

IBM

Int'l Business Machines

145.71

2.60

1.78

11.00

23.64

15

AXP

American Express

42.79

0.72

1.68

3.07

23.45

0

DIS

Walt Disney Company

37.36

0.40

1.07

2.03

19.70

1

AA

Alcoa Inc.

15.25

0.12

0.79

-0.28

NM

0

HPQ

Hewlett-Packard

42.25

0.32

0.76

3.69

8.67

0

JPM

JP Morgan Chase & Co.

42.61

0.20

0.47

3.59

5.57

0

BAC

Bank of America

13.34

0.04

0.30

-0.77

NM

0

CSCO

Cisco Systems, Inc.

20.35

0.00

0.00

1.36

0.00

0

In terms of reliable dividend increases, the Dogs appear to have a mediocre record at best, with three Champions (25 years or more), one Contender (10-24 years), and one Challenger (5-9 years). Note that both Pfizer (NYSE:PFE) and GE declared increases in 2010, but their total 2010 dividend payments were less than was paid in 2009, so any new streak will have to begin in 2011. Kraft Foods (KFT) froze its dividend rate in 2008, prior to its acquisition of Cadbury, and Merck (NYSE:MRK) and DuPont (NYSE:DD) simply have not raised their payouts for many years. The payout ratios for Pfizer and Verizon (NYSE:VZ) appear to be distorted by depressed earnings figures, so this should also be a concern to potential investors.

One could make the case that the companies that have not been raising their dividends are truly “dogs” that hold the potential for a rebound, much in keeping with the Dogs theory, but the goal with those companies is largely based on price appreciation. Investors focused on dividend consistency might be more interested in the Dogs (and other Dow companies) that have proven themselves over time by consistently increasing their payouts.

Disclosure: I am long T, KFT, JNJ, GE, INTC, PG, HD, KO, TRV, MMM, XOM, MSFT, UTX, CAT, HPQ, BAC.

Additional disclosure: Except for CAT, all my holdings are in DRIP accounts.

Source: Dow Dog Dividend Champions