Dogs of the Dow May Finally Get Their Day
BOSTON (TheStreet) -- With U.S. stocks doubling since the market low in March 2009, investors may have forgotten that equities stagnated during the first three quarters of 2010.
Between Jan. 1 and Oct. 1, the S&P 500 Index rose a paltry 2.1%. But upon announcement of the Federal Reserve's so-called QE2, investors ramped up risk. The benchmark has risen 16% since October and is up 24% since rumors of QE2 -- the Fed's large-scale bond-buying program -- surfaced in late August. The Federal Reserve is scheduled to abruptly end its second round of purchases in June and already forecasters are warning of market dislocation.
In the monthly missive of Bill Gross, chief investment officer of Pimco, the bond guru questioned who would step up to purchase Treasuries once the Fed exits, warning that the bond market could fall sharply as the demand curve for securities reverts. Gross provides data indicating that yields are artificially low.
Conversely, others have pointed out that, following the end of QE1, Treasuries rallied significantly and stocks were dumped as investors sought safe-haven investments amid ongoing structural economic headwinds. The purpose of asset purchases is to spur investors to purchase riskier assets. So those that have rallied significantly, namely, stocks and commodities, could decline when QE2 concludes. Investors should consider defensive tactics before QE2 ends.Dow stocks, still undervalued on a historical basis, aren't necessarily safe havens as hot names, such as Caterpillar (CAT), which has more than quadrupled since the March 2009 low, would be most likely to decline in a sell-off. But dividend-paying, cyclically resilient equities would probably gain attention. Here's a look at the five highest-yielding Dow stocks, the so-called dogs of the Dow, ordered by yield. They are worth considering if markets turn volatile in coming weeks.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV