Sunday, January 09, 2011

Dogs of the Dow - Our Focus for 2011

In 2010, the Dogs of the Dow investing strategy returned 16.25% beating the Dow 30 index which returned 9.47%. This is only the second time since 2003 that the Dogs of the Dow strategy has beat the index significantly. For more details, see the Dogs of the Dow performance tables. 2011 Dogs of the Dow at shares the list of the 2011 Dogs and shows the 2010 Dogs results.

For reference, the Dogs of the Dow strategy is a contrarian investing approach. The strategy is based on investing equal amounts in the 10 highest yielding Dow 30 stocks since these price of these stocks have been beaten down. The assumption is that companies in the Dow 30 have sufficient financial and corporate strength to recover from short term business declines. However, the recent economic crisis showed that Dow stocks are not immune to disaster as former Dow stocks General Motors and Citigroup have demonstrated.

Will the 2011 Dogs of the Dow also beat the Dow 30 index? I expect that the Dogs will do well as the economy continues to strengthen. However, my focus will be on one segment of the Dog stocks, the health care sector which includes Pfizer (PFE), Merck (MRK) and Johnson & Johnson (JNJ). Health care stocks have been beaten down due to the passage the Health Care bill. I believe these stocks will do much better in 2011 as the impact of the health care bill becomes more clear. Also, these stocks pay a 3.5% to 4.5% dividend which provides a good return while waiting for recovery.

Disclosure: At time of publication, we own Pfizer in our trading account.

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This is not financial or investment advice. Please consult a professional advisor.

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