The “Dogs of the Dow” investment strategy is about as traditional as they come, and it has a better record than many money managers.
The approach involves selecting the ten stocks in the Dow Jones Industrial Average at the end of the year with the highest dividend yield, usually lifted by an underperforming share price.
The Dogs of the Dow method didn’t work very well between 2004 and 2009, but it was a good strategy in the last bear market, between 2000 and 2003.
In the last two years, the approach has outperformed both the Dow Jones Industrial Average and the S&P 500.
Here are the results year-to-date, thanks to Canaccord Genuity: the 2011 Dogs have gained 9.5 per cent, the Dow Jones is up 5.2 per cent and the S&P/TSX is down 0.2 per cent. The best performing 2011 Dog stocks are: McDonald's, up nearly 28 per cent; Intel, up almost 19 per cent, and Pfizer, up 17.4 per cent.
The underperformers of the year include: DuPont, down 9.7 per cent; AT&T, off 1.2 per cent, and Merck, down 1 per cent.
There are 14 contenders for 2012 yielding at least 3 per cent. But if the bar is raised to a 4 per cent yield there are only four companies: AT&T at 6 per cent, Verizon at 5.3 per cent, Merck at 4.8 per cent and Pfizer at 5.3 per cent.