‘Dogs of the Dow’ Loses a Dog

The “Dogs of the Dow” investing strategy just lost its best-performing canine this year: Hewlett-Packard Co.HPQ -0.72%
The classic Wall Street strategy holds that investors start a year by purchasing the 10 highest-yielding components of the Dow Jones Industrial Average. The aim is to acquire more dividend income and hope the past year’s laggards return with a vengeance. Excluding dividend increases, yields rise when stock prices fall, underscoring the core of the Dogs strategy.
H-P, one of this year’s dogs, is the Dow’s top performer in 2013, up 56%.
H-P, Bank of America Corp.BAC +1.07% and Alcoa Inc.AA -0.31% are being stripped from the Dow and will be replaced by Nike Inc.NKE +1.70%, Visa Inc.V +2.90% and Goldman Sachs Group Inc.
An investor who utilized the “Dogs of the Dow” investing approach at the beginning of 2013 is sitting pretty now. As of the end of August, the 10 dogs were up 19%, compared to a 13% for the blue-chip average. The strategy underperformed last year after beating the market in 2010 and 2011.
But much of those gains were fueled by H-P, which went from being the Dow’s biggest laggard in 2012 to its top performer this year.
It’s unclear whether Tuesday’s developments would change much for traditional “dogs” investors. The strategy effectively calls for an investor to buy a certain basket of stocks on Jan. 1 and hold them through the end of the year. But different variations and interpretations of this investing theme have developed throughout the years and could be impacted by H-P leaving the Dow.
For answers, MoneyBeat tossed a call to money manager Michael O’Higgins, who is credited with creating the Dogs approach in the early 1990s. He suggested “dog” investors shouldn’t change their approach based on Tuesday’s announcement. Investing in the dogs is “a once-a-year thing,” Mr. O’Higgins said. “No reason to change at this point.”
This year’s so-called dogs are AT&T Inc.T +0.59%, Verizon Communications Inc.VZ +1.09%, Intel Corp.INTC +0.09%, Merck & Co., DuPont Co., Pfizer Inc.PFE +0.53%, H-P, General Electric Company, Johnson & Johnson and McDonald's Corp.

By Steven Russolillo

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