BALTIMORE (Stockpickr) -- Don't break out the champagne and start singing Auld Lang Syne just yet; the New Year is mere hours away, and now's the time to get positioned for a profitable 2015. How?
Simple -- buy the stocks that look like real dogs.
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For the last two decades, the "Dogs of the Dow" has been one of the most widely circulated investment strategies out there, offering individual investors a simple formula to beat the market: simply buy the 10 highest-yielding Dow Jones Industrial Average stocks at the start of each year, and hold on.
So, which names fit the criteria as the calendar flips to 2015?
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.
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. But times have changed. We're in a bull market that's been rewarding more staid names with major flights to quality. As investors get anxious about stocks pressing up against new all-time highs, these big Dow names with big dividend yields offer an attractive way to get positioned.
It can get even simpler than that. More recent research shows that paring down the Dogs of the Dow to a more concentrated portfolio of five stocks, rather than ten, has delivered some stellar outperformance in the last decade. So today, we’ll take a closer look at five Dow Dogs to buy for the new year.
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