Recent Performance Review Of The 2012 Dogs Of The Dow

Includes: DD, GE, INTC, JNJ, MDLZ, MRK, PFE, PG, T, VZ
by: Zvi Bar

The Dogs of the Dow theory is an investing strategy that presumes investing in the ten highest yielding Dow Industrial components at the start of each year, or another chosen time to periodically invest, is a prudent investing strategy. This strategy is based on the idea that the higher yielding components are laggards that could catch up and provide capital appreciation, and that they should also provide an above-average income stream.

Moreover, because all Dow Dogs are DJIA components, the investments will all be large and liquid equities. In 2011, the Dogs of the Dow outperformed the broader market as defined by the DJIA and S&P 500, with the 2011 dogs combining to appreciate by 12.08 percent, well above the 5.37% appreciation by the Dow and a 0.20% decline for the S&P 500. Further, the 2011 dogs provided an average yield of 3.87 percent, which was well above either index.

Eight of the 2011 dogs are still dogs in 2012. The 2012 dogs are AT&T (NYSE:T), DuPont (NYSE:DD), General Electric (NYSE:GE), Intel (NASDAQ:INTC), Johnson & Johnson (NYSE:JNJ), Kraft (KFT), Merck (NYSE:MRK), Pfizer (NYSE:PFE), Procter & Gamble (NYSE:PG) and Verizon (NYSE:VZ). The two new dogs are GE and PG. These 2012 dogs are a slightly more varied group of equities than the 2011 group.

Below are recent performance rates for the 2012 dogs, including their 2012-to-date performance, as well as their current yields.

The 2012 dogs now have an average yield of 3.92 percent, which is well above the rate paid by the broader market or a 10 year Treasury. The S&P 500 presently yields 1.88 percent, but may grow at a faster rate than the Dogs.

The 2011 Dogs lacked financial sector exposure, which then turned out to be a good thing. The inclusion of GE (GE) in 2012 brings with it some significant financial exposure. Nonetheless, the 2012 Dogs are significantly underweight financials compared to the broader market, and this underweighting has contributed to under performance due to recent broad strength by financials.

2011 was a very volatile year that ended in an upswing, and it appears likely that 2012 could be similarly volatile, with issues such as European sovereign failures, Middle Eastern revolts, U.S. fiscal policy and potential Asian cooling all still overhanging. The U.S. market performed exceedingly well to begin the year, with the S&P 500 up 11.31 percent so far this year, well-above the 4.63 percent average performance by the 2012 Dogs.

The best performing 2012 Dog so far is DuPont (DD), which was the worst performing 2011 Dog. Intel (INTC) and DuPont are the only two 2012 Dogs that are outperforming the S&P 500 year to date.

Disclosure: I am long (GE), (INTC), (KFT).

Disclaimer: This article is intended to be informative and should not be construed as personalized advice, as it does not take into account your specific situation or objectives.