Dogs of the Dow for 2012

January 2, 2012 · 0 comments

The Dogs of the Dow for 2012 will probably be a hot topic this year since in 2011, the Dogs of the Dow returned 17% (dividends included) versus a 4.6% return for the DJIA as a whole (also adjusted for dividend returns).  The theory behind the Dogs of the Dow is that each year, investors select the 10 highest yielding stocks in the index of 30 with the presumption that their yields are high from falling the prior year and will return a disproportionately high return in the form of both dividend yield and capital appreciation.  In many years, the Dogs of the Dow do not perform the broader index or the S&P500, but in 2011, the Dogs outperformed significantly.  Without further ado, here is the list for 2012 of the highest yielding 10 Dow stocks:

Ticker/Yield/Company

T     5.8%   AT&T

VZ   5.0%   Verizon

MRK 4.5%  Merck

PFE 4.1% Pfizer

GE  3.8% General Electric

DD  3.6%  Dupont

JNJ  3.5%  Johnson & Johnson

INTC 3.5%  Intel

PG    3.2%  Proctor & Gamble

KFT 3.1%  Kraft Foods

The average yield for a portfolio consisting of the 2012 Dogs of the Dow would be 4.0%.  In the face of 10-Year Treasuries yielding less than 2% and the perils of chasing high yields otherwise, this may not be a bad approach for 2012 given the likely continued uncertainty in global markets (US included).  Another approach could be to hold them and sell out of the money calls on them while collecting the dividends if the stocks don’t hit the strike price.  If you’re wading into options, here’s an optionsXpress promo code.

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