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As many investors probably know, the Dogs of the Dow for a particular year are the 10 stocks in the Dow Jones Industrial Average [DJIA] index that have the highest dividend yields. The concept was first introduced by Michael B. O'Higgins in 1991, and these stocks and its subset, the Small Dogs of the Dow, have consistently outperformed the Dow Jones and the S&P 500 over the long term. As such, these are highly popular dividend stocks of the Wall Street.

Now, over the years, the list of the 10 Dog stocks have not remained the same. Some stocks have been a fixture on the list; some have moved out. I think it is very important for dividend investors to know which stocks have remained consistently on this list, and which haven't. Since O'Higgins called these 10 stocks "the Dogs" I will use the dog analogy to explain what I have in mind.

Take any street anywhere. Every street has its strays, and every street has its pets. Pet dogs are a moving population; as their owners move, these pet dogs keep moving in and out of the street. You can't depend on them to stay put. Stray dogs, on the other hand, are the bulls of the street. Until they die off, they don't go away. They are here to stay, and 3 years from now, or 5, or whatever dog lifetime you consider, you will still find them here.

Now come to the Wall Street, specifically those dividend yielding stocks that comprise the Dogs of the Dow. This list keeps changing every year, because the pet dogs move out. However, there are those stray dogs in that list that are more or less permanent members there. I studied the list for the past 10 years and made a list of all those stocks that I consider stray. This is a handy tool for predicting what comes on that list next year.

Identifying the Stray Dogs

(click to enlarge)

As you can see, DuPont (NYSE:DD) has been on this list every year since 2003. AT&T (NYSE:T) made the list every year except 2005, Verizon (NYSE:VZ) made it in all years except 2004 and 2003, Merck (NYSE:MRK) dropped out only in 2008 and 2003, and Pfizer (NYSE:PFE) failed to make the grade in years 2004 and 2003. Compared to the other stocks on the list, then, these 5 have consistently made that list in the past 10 years. Let us call these 5 stocks the Stray Dow Dogs of The Decade.

Kraft (KFT) is a recent stray; it wasn't on the list before 2009, but has since then been consistently on it. Intel (NASDAQ:INTC) joined recently, but considering the dwindling PC market, it might be a stock you would think twice before going long on.

Stray Dogs of the Dow stocks are good for a few things:

  • Long term, income-yearning, possibly retired investors without a great deal of energy to keep watching the markets can trust these stocks to continue yielding dividends for years to come.
  • Less brokerage; you don't need to buy and sell these stocks every year.
  • Moderately diversified in the Telecom and the Healthcare sectors.

So, you can consider this an useful subset of the Dogs of the Dow and use this handy list to invest in dividend yielding stocks. In another article, I will do a detailed study of how these 5 stocks have performed over the years.

Source: Stray Dogs Of The Dow