2011 Dow Dog Performance Review As End Of Q3 Approaches

by: Zvi Bar
Many investors have been craving higher yielding investments. The interest rate banks now offer for cash and short-term CDs is now usually below one percent and getting lower all the time. Additionally, short- and intermediate-term U.S. Treasuries are not much better, with risk of spiking interest rates potentially hurting the asset class. As a result, many investors are avoiding the bond markets and looking for stable large-cap equities that can supplement or replace the fixed income portion of their portfolio.
Nonetheless, several of the oldest, most well-recognized and respected organizations are paying sizable dividends. The dogs of the Dow theory presumes that investing in the 10 Dow Industrial components that enter a calendar year with the highest yields is a prudent investing strategy. The theorists note that these components should all be relatively strong companies, and that their high yields indicate that they should appreciate and/or continue to produce and above-average yield.
The following are the 10 DJIA components that started 2011 as dogs. I have provided their current yields, as well as their 1-month, 3-month, 6-month and year-to-date performances.
  • Yield: 6.2%
  • 1-month: -0.38%
  • 3-month: -5.95%
  • 6-month: 0.28%
  • 2011-to-date: -1.53%
Verizon (NYSE:VZ)
  • Yield: 5.6%
  • 1-month: 4%
  • 3-month: 2.16%
  • 6-month: -0.27%
  • 2011-to-date: 3.94%
Pfizer (NYSE:PFE)
  • Yield: 4.6%
  • 1-month: -1.10%
  • 3-month: -10.71%
  • 6-month: -11.5%
  • 2011-to-date: 2.85%
Merck (NYSE:MRK)
  • Yield: 4.9%
  • 1-month: 1.69%
  • 3-month: -5.99%
  • 6-month: -0.34%
  • 2011-to-date: -9.92%
Kraft (KFT)
  • Yield: 3.4%
  • 1-month: 3.5%
  • 3-month: 1.86%
  • 6-month: 12.41%
  • 2011-to-date: 12.38%
Johnson & Johnson (NYSE:JNJ)
  • Yield: 3.7%
  • 1-month: -0.09%
  • 3-month: -1.58%
  • 6-month: 8.88%
  • 2011-to-date: 3.83%
  • Yield: 3.8%
  • 1-month: 15.66%
  • 3-month: 7.15%
  • 6-month: 12.25%
  • 2011-to-date: 10.08%
Dupont (NYSE:DD)
  • Yield: 4.1%
  • 1-month: -6.59%
  • 3-month: -16.80%
  • 6-month: -20.42%
  • 2011-to-date: -13.68%
McDonald's (NYSE:MCD)
  • Yield: 2.8%
  • 1-month: 1.02%
  • 3-month: 10.35%
  • 6-month: 20.73%
  • 2011-to-date: 18.35%
Chevron (NYSE:CVX)
  • Yield: 3.5%
  • 1-month: -1.89%
  • 3-month: -3.93%
  • 6-month: -11.01%
  • 2011-to-date: 4.12%
Another great thing about the dogs is that the companies are usually familiar to American consumers, and they will find it easy to obtain news and information on them. Further, the companies are highly liquid, and investors probably do not have to fear being unable to sell their shares at a fair market price.
You may also find that the 10 combine to make a reasonably diverse, yet conservative portfolio, with a strong domestic, international and emerging market profile, though any year's dogs will likely not be a wholly diverse or complete portfolio. As a substitute or complement to the fixed income portion of a portfolio, allocating into these 10 equities would provide a yield above the 30-year U.S. Treasury rate, with a strong history of dividend growth and price appreciation.
It presently appears as though the vast majority of the 2011 dogs will be dogs again in 2012. In fact, several have been dogs for a few years straight and the only 2011 dog that appears to have worked itself out of the set is McDonald’s. Nonetheless, others may also be removed from the list due to the recent dramatic sell-off, which has increased the yields of Dow financials such as General Electric (NYSE:GE) and Travelers (NYSE:TRV) to a dog-competitive level.
Disclosure: I am long KFT.

Disclaimer: This article should not be construed as personalized investment advice as it does not take into account your specific situation or objectives.