Woof! 2008's Dogs of the Dow
Posted
Jan 02 2008, 04:50 PM
by
Matt Koppenheffer
The "Dogs of the Dow" is a mechanical investing theory born in the early 90's. The strategy is to invest in the top 10 highest-yielding (dividend as a percentage of stock price) Dow stocks at the beginning of each year. The theory is that though stock prices can wildly fluctuate over market cycles, dividends tend to stay stable, so high yielding stocks typically represent undervalued stocks.
While I'm not a mechanical investor by any stretch, I am willing to troll for ideas at a lot of different fishing holes. So without further ado, the Dogs of the Dow for 2008 (with dividend yield) are:
Like I said, this is typically used as a mechanical investing strategy so the fact that these stocks are on the list is enough for true followers to make their investment decisions. I prefer to use the list as a jumping off point for more research.
Taking the group one step further, I took a look at how the investors in The Motley Fool's CAPS community rated these "dogs." There are four on the list -- Altria, Verizon, AT&T, and General Electric -- that are currently rated four or five stars (out of five). Altria, the sole five-star stock, is one that I currently own. Now that it looks like the painful smoking litigation is a been-there-done-that for the company, it's basically a stable cash machine. Plus, as a bonus, the company is considering spinning off its faster growing international subsidiary to shareholders.
In a very different industry, AT&T, thanks to the powerful tailwind of voice and data communications, seems to keep ending up on my watch list. Among many other things going for it, AT&T has exclusive service rights to Apple's iPhone. Though young, the iPhone has already made big waves and has helped further propel Apple's results.
On CAPS, one AT&T fan, jerkimo said noted that "the largest cellular network [and] a solid dividend … give AT&T an enviable position in the telecom sector." He goes on to project that after a stretch of lackluster returns, the stock is well positioned to continue the outperformance of the past year.
(Full disclosure: I currently own shares of Altria, but do not have a financial position in any of the other companies mentioned.)
