If you're looking for a historically proven way to generate nice returns in the stock market, then the Dogs of the Dow may be your answer. This value-oriented trading strategy focuses on purchasing the 10 highest-yielding Dow Jones Industrial Average stocks on the first day of every year and holding each for a year.The Dogs of the Dow strategy returned about 14% a year from 1929 until 2003, outpacing the S&P 500's 11.7% annual return during that time. In 2006, the Dogs of the Dow returned 22%. However, in 2007, the Dogs of the Dow delivered a negative return, as financials and consumer-related stocks hurt the group's performance in 2007. So what are these dividend-yielding stocks' chances for 2008? Let's look at a few names that had a down 2007. And visit Stockpickr.com to view all 10 of the Dogs of the Dow for 2008. The highest-yielding company in the Dow is Citigroup ( C), a stock that offers a 7.3% dividend yield. Citigroup ended 2007 down nearly 50% after the financial services firm suffered record losses from writedowns in its subprime-lending division. Former CEO Chuck Prince was fired in 2007, and the board promoted Vikram Pandit, former hedge fund manager at Old Lane, to the CEO position. By all accounts, Citigroup is a poorly run, mismanaged firm with no real direction. However, all that really matters here is if 2008 will be better than 2007 in terms of stock performance. Value investors Ahmet Okumus of Okumus Capital and Edward Lampert of ESL Investments appear to think so. In fact, both funds likely will press for representation on the board of Citigroup in 2008 and perhaps plead for a breakup of the company.
Another downtrending dog in 2007 was General Motors ( GM), which ended the year down 19%, despite being up as much as 40% in mid-October. General Motors has a dividend yield of 4%, one of the highest in the auto industry. The stock is now starting to act as if a major recession is coming in 2008. Despite making many right moves in 2007, including favorable outcomes with the unions and divesting control over its GMAC loans, the company had a horrible month in December. Current CEO Rick Wagoner is still in the midst of his restructuring plan. Wagoner is focusing on exposing GM's portfolio to the rest of the world. Longer term, this is a huge plus for GM. About 10% of the shares' flat is short, a fairly high amount considering GM's prominent name. I believe 2008 will prove interesting for GM. Declining U.S. auto sales will certainly continue, but Wagoner's international growth plan might offset this trend. At these levels, GM represents a good buy into 2008. DuPont ( DD), another Dog of the Dow, fell about 9.5%. While DuPont won't double from here, the chemicals and technology company trades at just 9 times cash flow and is a safe bet going into 2008. DuPont offers a dividend yield of 3.7%. For the rest of the Dogs of the Dow, and the funds that own them, check out the Dogs of the Dow 2008 at Stockpickr.com.