Trading Strategy: 2012 Dogs of the Dow
The popularity of dividend income often sends investors flooding to high yield stocks, inflating prices -- a pattern some investors are quick to capitalize on.
Dogs of the Dow is a stock picking strategy where investors buy into the 10 highest yield dividend stocks trading on the Dow Jones Industrial Average at the start of the year and sell at the end. The strategy has proven very successful over the years.
Dogsofthedow.com reports this technique has given a 17.7% average annual return since 1973, an impressive return considering the DJIA return was 11.9% during that same period.
In 2010 the Dogs outpaced the Dow with a gain of 20.5%. In 2009, it priced in a 16.9% gain. In 2008, it declined after a flat year in 2007. Before that, in 2006, the Dogs had a record gain of 30.3%. The trend is largely positive since the strategy was popularized in 1991.
Business section: Investing ideas
Past performance is no guarantee of future results, but if you're willing to try your hands at the Dogs of the Dow strategy we're glad to help out.
Here are the 10 highest dividend yield stocks on the DJIA. It's the start of January -- do you think the strategy will prove successful in 2012?
List sorted by dividend yield. (Click here to access free, interactive tools to analyze these ideas.)
1. AT&T (NYS: T) : Provides telecommunication services to consumers, businesses, and other service providers worldwide. Market cap of $179.20B. Dividend yield at 5.82%.
2. Verizon Communications: Provides communication services. Market cap of $113.58B. Dividend yield at 4.99%.
3. Merck (NYS: MRK) : Provides various health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. Market cap of $114.91B. Dividend yield at 4.46%.
4. Pfizer (NYS: PFE) : A biopharmaceutical company, offers prescription medicines for humans and animals worldwide. Market cap of $166.35B. Dividend yield at 4.07%.
5. General Electric (NYS: GE) : Operates as a technology, service, and finance company worldwide. Market cap of $189.08B. Dividend yield at 3.8%.
6. E. I. du Pont de Nemours and Company: Chemicals Diversified Industry. Market cap of $42.30B. Dividend yield at 3.58%.
7. Johnson & Johnson: Engages in the research and development, manufacture, and sale of various products in the health care field worldwide. Market cap of $179.09B. Dividend yield at 3.48%.
8. Intel (NAS: INTC) : Engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. Market cap of $123.48B. Dividend yield at 3.46%.
9. Procter & Gamble: Provides consumer packaged goods in the United States and internationally. Market cap of $183.54B. Dividend yield at 3.15%.
10. Kraft Foods: Together with its subsidiaries, manufactures and markets packaged food products worldwide. Market cap of $66.01B. Dividend yield at 3.1%.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Author owns shares of GE. Data sourced from Finviz.
At the time this article was published The Motley Fool owns shares of Johnson & Johnson and Intel. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Procter & Gamble, Intel, Johnson & Johnson, and Pfizer. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. Motley Fool newsletter services have recommended creating a bull call spread position in Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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