This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

10 Dow Dogs That Are Barking for Gains

Stocks in this article: PFETGEPGMRKVZJNJDDCVXKFT

BALTIMORE ( Stockpickr) -- For the last two decades, the " Dogs of the Dow" has been one of the most widely circulated investment strategies out there, offering a individual investors with simple formula to beat the market: Simply buy the 10 highest-yielding Dow stocks at the start of each year, and hold on.

So should you be buying the dogs in 2012?

When Michael O'Higgins introduced his strategy in 1991, it took the market by storm. Backtesting showed that the Dogs of the Dow strategy significantly beat the broad market from the 1920s on. The justification was that the big names of the Dow don't kowtow to market conditions, so their high dividends reflect strong businesses trading cheaply. But the strategy got a black eye during the 1990s, when it trailed the market by a significant clip.

>>5 Stocks Ready for Big Dividend Boosts

So should you be buying these names, or have the Dogs of the Dow lost their bite?

It shouldn't have been a huge surprise that the Dogs of the Dow failed to beat the market during the bull run of the 1990s. During the tech bubble, staid Dow names couldn't possibly move as much as the more volatile tech names that were gaining increasing weight in market indices. While some market watchers have written off the Dogs strategy as a case of data mining bias gone awry, the fundamental argument for buying high-yielding Dow stocks negates at least part of that argument.

The timing element of the Dogs strategy can be thrown out -- January isn't perennially the best time to buy stocks. So can the number of stocks in the mix. While the diversification aspect of 10 stocks is great, these names are defensive by their nature, so picking a smaller kennel of stocks isn't necessarily a bad option. But the strategy itself still holds water, and in the last couple of years, the results show it.

The Dogs of the Dow returned 20.5% in 2010 and 16.3% in 2011, dramatically outperforming the broad market both years. Today, we'll take an analyst's look at the 10 Dogs of the Dow stocks.

1 of 11

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs