Five 'Dogs of the Dow' Worth Betting On: CVX , INTC, MCD , T, VZ

The “Dogs of the Dow” strategy zeroes in on the 10 Stocks in the Dow Jones Industrial Average (DIA) with the highest dividend yield. This stock-picking strategy depends for its success on the fact that out of a select list of 30 large-cap blue chip stocks, a portfolio of the 10 highest yielding components is likely to outperform the Index over the ensuing 12 months.Research from 1973 to 1991, when Michael O’Higgins first published the “Dogs of the Dow” strategy, showed that it significantly outperformed the DIA. Since 1996, the strategy has had mixed results, but performed quite well in 2010, with the 10 stocks showing a gain of 15.5% vs. a gain of 11% for the DIA. With dividends factored in, the overall return was 21% vs. 14% for the DIA.

Since we expect large-cap stocks to do quite well in 2011, a theme we have explored in previous Seeking Alpha posts, we decided to look at this year’s 10 “Dogs of the Dow” candidates. Five of those stocks currently have a Bullish rating. Since we like large-cap stocks in 2011 -- and these stocks have an average dividend yield of 4.3% -- we think that as a group they represent an attractive portfolio for the first six months of 2011. Please note that two of these stocks AT&T (T) and Verizon (VZ) are in the Telecommunications Group and will likely be vying for iPhone customers.

Our rating is based on a 20-factor model incorporating Financial Metrics, Earnings Performance, Price/Volume activity and Expert Opinions to determine a stock’s potential over the next three-to-six months. (more)