Several articles, both here on Seeking Alpha and elsewhere, have recently discussed the “Dogs of the Dow” strategy, which calls for buying the 10 highest yielding companies in the Dow Jones Industrial Average at the end of the year. I decided to compare the Dogs (along with the rest of the components in that index) to my listing of Dividend Champions/Contenders/Challengers, which can be found here. (Note that the November 30 listing will be replaced after Friday's market close.) My thinking was that investors might want to consider not just the current yield, but also the history of each company increasing its dividend on an annual basis, as well as the payout ratio for each company.
The data below is from Yahoo, with the exception of the number of years of dividend increases. The projected Dogs are in bold, although it's worth noting that slight changes in the last few trading days of 2010 could easily cause Intel (INTC) or Procter & Gamble (PG) to take the place of General Electric (GE) among the Dogs.
In terms of reliable dividend increases, the Dogs appear to have a mediocre record at best, with three Champions (25 years or more), one Contender (10-24 years), and one Challenger (5-9 years). Note that both Pfizer (PFE) and GE declared increases in 2010, but their total 2010 dividend payments were less than was paid in 2009, so any new streak will have to begin in 2011. Kraft Foods (KFT) froze its dividend rate in 2008, prior to its acquisition of Cadbury, and Merck (MRK) and DuPont (DD) simply have not raised their payouts for many years. The payout ratios for Pfizer and Verizon (VZ) appear to be distorted by depressed earnings figures, so this should also be a concern to potential investors. (more)
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