Dogs of Dow Merely In-Line During Current Bull Market

For those unfamiliar with the Dogs of the Dow, it represents the 10 highest yielding stocks in the Dow Jones Industrial Average, and the investment strategy behind it is simply buying these 10 stocks at the beginning of each year in hopes of outperforming the index as a whole. At right we highlight the current Dogs of the Dow in order by dividend yield. As shown, Citigroup (C) is at the top of the list with a yield of 6.66%. Citi is followed by PFE, MO, VZ, GM, T, DD, JPM, HD and GE.

We decided to look back at how the Dogs of the Dow strategy has worked during the current bull market (2003-present), and the results have been in-line. The cumulative total return of buying the Dogs of the Dow at the start of the year and selling at the end of the year, then repeating the process each year is 81.25%. The total return of the Dow 30 over the same time period has been 80.25%. We didn't factor in commission costs to the Dogs of the Dow strategy, and if those were applied, the results would probably be worse than simply buying the entire index. As shown in the table below, the strategy outperformed slightly in 2003 and 2004, underperformed in 2005, outperformed in 2006 and is underperforming this year, largely as a result of Citi.

click to enlarge

Comments

[Bharper:]

The DJ select dividend index has also been a pretty lousy performer this year, and highly volatile. Deep value is deeply undervalued.

2007 Dec 17 05:05 PM

[TAG:]

I thought the "Dogs of the Dow" strategy was to buy the 10 worst performing stocks in the Dow 30 from the prior year? (ergo "Dogs").

Am I missing something here?

2007 Dec 31 11:16 AM