Dogs Of The Dow Index 2011 Audit

|
Includes: CVX, GE, MCD, MDLZ, PG, T
by: Fredrik Arnold

To determine the best of the best dividend stocks, many investors rely on a once per year trading system triggered by yield, called the "Dogs of the Index" strategy. This strategy gives the investor the tactical advantage of obtaining all the wisdom and knowledge of the well-paid wizards of investment, merely by choosing an existing collection of equities built by the experts.

Popularized by Michael B. O'Higgins in the book "Beating The Dow" (HarperCollins, 1991), this Dogs of the Index strategy reveals how low-yielding stocks whose prices increase (and whose dividend yields therefore decrease) can be sold off once each year to sweep gains and reinvest the seed money into higher-yielding stocks in the same index. Charts below display a snapshot of the Dow Index at close of business December 30, 2011.

Instant investment wisdom from the Dow Index

Listed below are the 30 Dow Index stocks by yield as of 12/30/11 per Yahoo Financial data. CME Group, publisher if this index, states, "The Dow Jones Industrial Average (DJIA) is a price-weighted index of 30 blue-chip U.S. companies representing nine economic sectors including financial service, technology, retail, entertainment and consumer goods. The leadership position of the component stocks in the DJIA tends to result in an extremely high correlation of the DJIA to broader U.S. indices, such as the S&P 500 (NYSEARCA:SPY) Index providing additional opportunities."

Click to enlarge

Three of the top 10 stocks paying the biggest dividends on the Dow for December were technology firms. As it has for the entire year, AT&T (NYSE:T) continues atop this list. Its yield was at 5.98% as of November 11, and at 5.82% December 30 reflecting a $.82 price gain of 2.79%.

For these 30 Dow dividend payers, seven technology companies, three consumer goods, four financial, four services, four basic materials, two industrial, three healthcare, no utilities, and three conglomerates represent the market sectors.

2011's vertical moves by Dow index dividend payers

As already stated, one company, AT&T (T) , stayed at the top of the list in 2011. The color-coded chart below shows: (Yellow) companies listed in first position at least once between January and November 2011; (Cyan Blue) companies listed in 10th position at least once between January and November 2011; (Magenta) companies listed in20th position at least once between January and November 2011; (Green) companies listed in 30th position at least once between January and November 2011. Duplicates are depicted in color for highest ranking attained.

(Click on charts below to enlarge):

Click to enlarge

Click to enlarge

Click to enlarge

Click to enlarge

Comparing December vs. January charts reveals the top 10 Dow Dog list shuffle for 2011. McDonald's (NYSE:MCD), and Chevron (NYSE:CVX) were in the top 10 by yield in January. By December those two were replaced by General Electric (NYSE:GE), and Procter & Gamble (PG).

Kraft (KFT) nearly exited the yield based dog pound in 2011 by virtue of a 19.17% price gain for the year and no increase in dividend. McDonald's was thrown out by a 33.76% increase in price coupled with an 14.75% increase in dividend for 2011. Chevron snuck out with a 13.44% increase in price coupled with a 12.50% increase in dividend.

To join the pack of dogs at the top by yield, GE and PG were subjected to the following changes: General Electric had a 10.22% decline in price coupled with a 26.79% increase in dividend. Proctor & Gamble only had to move up a few slots to reach the top 10 by yield and did so with a 12.14% increase in price and a 8.80% increase in dividend. PG shows that sometimes a dog can move into the kennel while nearly standing still. PG's projected yield did grow from 2.93% in January to 3.15% in December.

2011 Dividend VS. Price Results for Dow Index Top 10

Below is a graph of the relative strengths of the top 10 Dow index stocks by yield as of December 30, 2011. Twelve months of historic projected annual dividend totals from $1000 invested in each of the 10 highest-yielding stocks each month versus the total single share prices of those 10 stocks each month creates the data points shown in green for price and blue for dividends.

Click to enlarge

The December Dow Index component update shows bull market tendencies exhibited over the past four months culminated in near convergence as total dividends from $1k invested in the top 10 dropped while aggregate total single share prices rose consistently.

Will the bull market push Dow aggregate single share prices of the top 10 stocks by yield beyond the annual projected dividend total from $1000 invested in each in 2012? That action would repeat the pattern exhibited in January and February 2011. Stay tuned.


Disclosure: I am long T, VZ, JNJ, INTC, CVX.

Disclaimer: This article is for informational and educational purposes only and shall not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security. Prices and returns on equities in this article are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding or selling same.