Dogs Of The Dow: 1st Quarter Results

by: David Crosetti

At the beginning of the year, I wrote two articles about the Dogs of the Dow. The response for these articles was very good and I thought it might be good to present a recap of how the Dogs have done in the first quarter of 2013.

Now we all are aware that the stock market in the first quarter rallied very nicely. No one can say where the market is headed from here with any real clarity, but the Dogs of the Dow have performed pretty well so far.

What You Should Know:

The Dogs of the Dow is a strategy that selects the 10 highest yielding stocks that are in the Dow 30, as of December 31st. The strategy does not involve any other metrics than dividend yield. Investors purchase equal dollar amounts of the 10 highest yielding stocks and hold them for 12 months, selling them on December 31st of the next year and then repeating the process all over again.

It's that simple. There is no valuation metric, there is no thought process involved. The strategy centers around the idea that the highest yielding companies in the Dow on December 31st are underpriced, and their yield points are used to identify these companies.

I am not going to argue the wisdom of this approach - I'm just sharing what it is and how it is intended to work-without making any value judgments. As my boss would say, "It is what it is."

What I Know:

So how did the Dogs of the Dow do? Glad you asked. Here are the results for the 1st Quarter with all of the Dow 30 companies. Highlighted in yellow are the original Dogs of the Dow.

(click to enlarge)

Hewlett-Packard (NYSE:HPQ) led the Dogs and the Dow with a price appreciation of 67%. Intel (NASDAQ:INTC) brought up the rear, appreciating 5.9% year to date. The Dow 30 were up 11.90% and the Dogs were up 16.7% in the 1st Quarter.

Summary and Conclusion:

I took a small position in the Dogs, allocating $1000 to each of the 10 companies that comprised the list, for a total investment of $10,000. So the portfolio has outperformed the Dow and I currently have a positive paper gain of $1670.

Ah, but these companies also pay dividends! Unfortunately some of them paid dividends, but I didn't receive them because I did not own the stocks until after the record date.

AT&T (NYSE:T) paid a dividend on 2/1 for shareholders on record of 1/10 as did Verizon (NYSE:VZ) for shareholders on record of 1/8.

The other holdings that will pay dividends in March are Dupont (DD), Intel , Johnson and Johnson (NYSE:JNJ), Pfizer (NYSE:PFE), and McDonald (NYSE:MCD).

April payers will be Hewlett-Packard , General Electric (NYSE:GE), and Merck (NYSE:MRK).

As for now, I will be holding my positions in the Dogs of the Dow and letting the strategy play out until the end of the year. Just as an aside, I am long in my other portfolios with all of these companies, having owned many of them as previous Dogs in past years.

Disclosure: I am long HPQ, DD, T, VZ, INTC, GE, JNJ, PFE, MCD, MRK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.