Sunday, December 31, 2006

Dogs of the Dow for 2007

This is my first public mention of the stock market, so please bear with me ...

Every year, I find myself worrying about where to place my money for the upcoming year. Last year around this time, I really liked metals and mining stocks. The year before that, it was oil and gas royalty trusts (I am a Canadian investor).

This year, I find myself intrigued with the 'Dogs of the Dow' theory, which according to wikipedia, is where 'an investor should annually select for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price.'

According to the SINLetter, the Dogs faired quite well in 2006 in comparison to the rest of the Dow (and other American markets).

Dogs Of The Dow Performance Vs Major Indices
2006 Dogs of the Dow 24.8%
Dow Jones Industrial Average16.29%
S&P 50013.62%
Russell 200017%

The 2007 picks for the dogs of the Dow are as follows (Name/Yield):

Verizon Communications4.34%
General Motors3.27%
General Electric3.07%

I have read about some modifications, for instance, picking the top yielding dogs with the smallest market capitalization with the hopes of higher growth which would translate into higher returns. Some opponents of the Dog strategy mention that some stocks (usually the high tech ones) pay smaller dividends which result from there consistent exclusion from the list.

The 'Pigs of the Dow' is another modification of the Dog strategy that doesn't exclude any members of the Dow. This strategy entails picking the 10 worst performing Dow stocks of the previous year. Of course, you might want to make sure that they didn't underperform for some obvious reason (maybe there was mention of bankruptcy, or have some form of potentially crippling pending litigation).

Anyways, I wish you luck with all your investments in the new year! Please feel free to comment on these strategies and to mention others that people might like.

  • I am not be liable for any investment decision made or action taken based upon the information on this page.
  • I suggest you check with a broker or financial adviser before making any stock investing decisions.
  • I am not offering financial advise, but rather commenting on widely available investment strategies.
  • Finally, Caveat emptor!