The Dogs of the Dow Fall Behind
There are countless strategies to employ when investing in stocks. One of the easiest and most well-known strategies is called the Dogs of the Dow. The strategy requires investors to buy an equal amount of the ten highest yielding stocks found in the Dow Jones Industrial Average at the beginning of the year. The ten stocks are then replaced at the beginning of the next year with the new highest yielding stocks in the Dow.
It can be difficult for some investors to stomach this strategy, because investors are only paying attention to dividend yields, as opposed to many other fundamental factors. This strategy paid off well in 2011, but not so well in 2012. Excluding dividends, the 10 Dogs of the Dow for 2012 have gained an average of only 5.9 percent year-to-date, compared to 12.5 percent in 2011. The only dogs to post declines for the year are DuPont and Intel. DuPont was also the only dog in 2011 to post a decline. In comparison, the non-dogs are up an average of 13.3 percent this year, along with the S&P 500 (NYSEARCA:SPY) which is also up about 13 percent.
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The 10 Dogs of the Dow for 2012 and their returns as of December 26 are listed below:
AT&T (NYSE:T) 11.7 percent
Verizon Communications (NYSE:VZ) 8.3 percent
Merck & Co. (NYSE:MRK) 9.7 percent
General Electric (NYSE:GE) 16.0 percent
Pfizer (NYSE:PFE) 16.6 percent
DuPont (NYSE:DD) -1.5 percent
Johnson & Johnson (NYSE:JNJ) 7.0 percent
Intel (NASDAQ:INTC) -15.0 percent
Procter & Gamble (NYSE:PG) 1.9 percent
Kraft Foods (NASDAQ:MDLZ) 3.9 percent
Investors employing the dog strategy for 2012 missed large gains in Dow components such as Home Depot (NYSE:HD) and Disney (NYSE:DIS), but also avoided the biggest losers such as Hewlett-Packard (NYSE:HPQ) and McDonald’s (NYSE:MCD). Bank of America (NYSE:BAC), the biggest blue-chip loser in 2011, turned out to be the best performing Dow member with a surge of 107.6 percent.
Kraft Foods, which was added to the Dow index in 2008, was replaced in September by UnitedHealth Group (NYSE:UNH) following a spin off in its North American grocery business.
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