Stocks & Commodities V. 32:1 (39): Explore Your Options by Tom Gentile

Stocks & Commodities V. 32:1 (39): Explore Your Options by Tom Gentile
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Explore Your Options by Tom Gentile


Dogs of the Dow is a stock-picking strategy devoted to selecting high-dividend stocks. Over time, the dogs of the Dow have yielded about 50% more per year on average than simply buying the Dow Jones Industrial Average (DJIA). The questions are, will this trend continue, and is there safety in buying the dogs in the case that the market pulls back in the future?

Investing in the dogs of the Dow is relatively simple. After the stock market closes on the last day of the year, of the 30 stocks that make up the DJIA, select the 10 stocks with the highest dividend yield. The strategy involves investing equal dollar amounts in each stock that qualifies as a ďdog.Ē Then you hold these 10 dogs for one year. Repeat this task every year. It canít get any simpler than that.

The safety is in the dividend yields, and with the market having a great year, itís surprising that there are still great dividends to be had. There are a few that I like for more than that reason, though. Of the 10 dog stocks, take a look at the cheapest five, which are called the puppies of the Dow, or the small dogs. They offer a lower stock price, and are considered safer for that reason. The investment strategy is no different from the dogs of the Dow strategy. Letís look at the dogs over the past year, as well as their dividend return from the start of 2013.

The 10 stocks listed in Figure 1 are ranked by dividend return for the year going forward. The small dogs in the far right column are noted by a yes in their prospective box. And though 2013 was a stellar year for the stock market overall, the dogs still outperformed! As of this writing, big dogs were returning 3% more than the DJIA itself, while small dogs were returning nearly 8% more for the year.

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