2011 Dogs Of The Dow Year End Performance Review

 |  Includes: CVX, DD, GE, HD, IBM, INTC, JNJ, JPM, MCD, MDLZ, MRK, PFE, T, VZ
by: David Alton Clark

A straightforward approach in choosing high-dividend-yield, winning stocks for your investment portfolio is buying the Dogs of the Dow. The Dogs of the Dow is an investment strategy popularized by Michael B. O'Higgins in 1991 which proposes that an investor annually select for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price.

Dogs of the Dow Strategy

The Dogs of the Dow is an unpretentious investment strategy. Two advantages of the strategy are that it is uncomplicated to execute and will save money on transaction costs, being a long-term strategy with no turnover during the year.

The two guidelines to employ are as follows:

  • Buy the top 10 stocks in the Dow Jones industrial average with the highest dividend yield.
  • Repeat this process at the beginning of each year, selling the companies that no longer remain in the top ten of highest yielding DOW companies.

Historic Performance Highlights

According to the DogsoftheDow.com, In the late 90s, at the height of the Y2K tech bubble, these high dividend stocks soared 28.6% in 1996, 22.2% in 1997, 10.7% in 1998, and rose 4.0% in 1999. Throughout the challenging bear market years of 2000 – 2002 the Dogs of the Dow climbed 6.4% in 2000, fell 4.9% in 2001, and dropped 8.9% in 2002.

Even so, this was sufficient to considerably outperform the Dow (NYSEARCA:DIA), S&P 500 (NYSEARCA:SPY), and Nasdaq (NASDAQ:QQQ) indexes during the identical respective time frames. In 2003, the Dow Dogs increased 28.7% and soared to new, all-time highs notwithstanding the colossal bear market of 2000-2002.

The high dividend yield Dogs stayed in record terrain in 2004 with a 4.4% advance but gave it all back and more with a 5.1% drop in 2005. In 2006, the Dogs swelled to record highs improving 30.3%. In 2007 they were flat and declined in 2008 along with the rest of the market as the financial crisis progressed. Nevertheless, by 2009 they rebounded with a 16.9% gain. In 2010, the Dogs of the Dow meaningfully outstripped the Dow with a gain of 20.5%.

2011 Performance Highlights

The current 2011 Dogs of the Dow and their corresponding yields are as follows: AT&T, Inc. (NYSE:T) 6.28%, Verizon Communications Inc. (NYSE:VZ) 5.66%, Merck & Co. Inc. (NYSE:MRK) 5.07%, Pfizer Inc. (NYSE:PFE) 4.34%, General Electric Company (NYSE:GE) 4.08%, E. I. du Pont de Nemours and Company (NYSE:DD) 3.74%, Johnson & Johnson (NYSE:JNJ) 3.72%, Intel Corporation (NASDAQ:INTC) 3.70%, Chevron Corporation (NYSE:CVX) 3.51% and Kraft Foods Inc. (KFT)at 3.38%.

As of today and based on 52 week performance, the Dogs of the Dow have underperformed the Dow with a gain of 2.74% versus a 4% gain for the Dow 30. The primary culprits causing the Dow to outperform the Dogs were The Home Depot, Inc. (NYSE:HD), International Business Machines Corp. (NYSE:IBM) and McDonald's Corp. (NYSE:MCD) with gains of 17.04%, 21.43% and 15.88% respectively.

Based on current dividend yields, the only replacement would be JPMorgan Chase & Co. (NYSE:JPM) currently yielding 3.51% for Kraft Foods Inc. with a current yield of 3.38%. Of course we still have a month to go. Please review the following chart depicting the current summary and dividend statistic for the 2011 Dogs of the Dow based of 52 week performance.

2011 Dogs Of The Dow Current Summary Statistics

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2011 Dogs Of The Dow Current Earnings and Dividend Statistics

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Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in T, VZ, MRK, PFE, INTC, CVX, GE over the next 72 hours.