2010 Dogs of the Dow
Director of Market Data & Content Services, CBNC
"Dogs of the Dow" or "High Yield 10" is a popular investment strategy that recommends the Dow stocks with the 10 highest yielding dividends. The theory behind the strategy is that dividends are more stable than stock prices and therefore, a high dividend yield reflects a stock that is near the bottom of its business cycle and has a beaten down share price poised for a rebound.
The basic strategy suggests putting an equal amount of money into each of the 10 stocks. There have been variations of the strategy that include proportionate investments in the Dogs weighted by share price. Other permutations suggest dropping the lowest price / highest yielding Dog out of concern that the company may be in deep trouble. Of course, any company could change its dividend to reflect a change in its business fundamentals. Last year, for example, Citigroup would have had a yield of over 9.5% based on trailing 12 months dividends in December 2008. However, Citi announced in November 2008 that it would cut its dividend to $.01 per share, significantly reducing its yield and taking it off the list for the Dogs of 2009.
Note that the strategy has not worked in the past couple of years. 2009's Dogs are up 14% YTD, while the Dow is up nearly 20%. Likewise, 2008's Dogs were down an average of over 41% for 2008 while the Dow was down 34%.
Given all of the above, here's a look at yields for the Dow stocks going into 2010. The top 10 would be your Dogs of the Dow. The number 10 spot is close between Boeing and Johnson & Johnson and could swap by year end.