'Dow Dogs' Offer Double Path to Profit?

Almost every analyst has an angle on how to beat the market, and investors pay big money for trading tips that promise guaranteed profits. But here on CNBC we give that advice away for free. John Prestbo, editor of Dow Jones Indexes, shared his “Dogs of the Dow” strategy on “Morning Call” today. It returned 32% in 2006.

The Dogs of the Dow are the 10 stocks with the highest yields in the Dow Jones Industrial Average on the last trading day of the year. Prestbo points out that all Dow stocks pay dividends and these 10 with the highest yields tend to have the most depressed prices as a result of neglect or being out of favor.

“So the idea is that if you but them, you’ll stand the greatest chance of price appreciation among the 30 Dow stocks, and meanwhile you get paid a handsome dividend return,” says Prestbo.

The stocks to buy for 2007: Verizon, Citigroup, Altria, Pfizer, General Motors, JPMorgan Chase, General Electric (parent company of CNBC), E.I. DuPont, and Merck. The only change between 2006 and 2007 is that last year Coca-Cola made the cut. GE, which pays a $1.03 dividend, took Coke’s place. Prestbo is hoping Wall Street will recognize GE’s profit growth.

Over the past 10 years, the Dogs have split the difference against the rest of the Dow, outearning the index five out of 10 times.