Dogs of the Dow

[TD2K]

Thoughts on this?

I've always been intrigued by it since by buying the highest dividend stocks in the DOW, you are buying stocks that tend to be low in price and should be looking at a larger 'pop' as they or their sector move back into favor/popularity.

I wondered about this reading the high dividend stock thread since the dogs of the Dow are running 3% or more on dividends.

[beenherebefore]

I've been buying and selling Alcoa for years, a frequent, if not permanent Dog of the Dow. Even after they cut the divident, it's still not bad.

[IPAfan]

I like the concept of DOGS OF THE DOW, but the problem is that you're buying the bottom of the DOW (which is only 30 stocks) based on dividend yield alone. If you took the highest yielding 50-100 stocks of the S&P500, you'd get the same sort of investment system with a lot more diversification.

[beenherebefore]

Agreed, it shouldn't be on dividend yield alone. No stock should be bought on one factor only.

[The Virginian]

Glad to see you are posting here BeenHereBefore! Welcome to the board!

[IPAfan]

beenherebefore -

I agree that no ONE stock should be bought by one characteristic alone.

Backtesting has shown that buying stocks JUST based on dividend yield does outperform the market, but we're talking about the top 20% of the market which means you're buying great companies AND value traps all at once. You should still outperform the market over time.

[beenherebefore]

Thank you so much for inviting me, Virginian!

IPAfan, value traps and other issues as well. I remember when GM and AIG were in the Dow 30.

[livinincali]

I'd stay away from dogs of the DOW. Most companies eventually die. The great visionary leadership that developed the company's success moves on and is replaced by capable people but generally not visionary people that can keep up with the changing trends of society. DOW companies are added to the DOW because of their long standing success over the years and usually by the time they make it to the DOW they have seen the vast majority of their growth. There are far more stories of failure in the DOW than successful turnarounds. The keys to look for if your going to take a chance with a turnaround is debt levels. Is the short and long term debt decreasing or increasing. If the debt is low or been decreasing for awhile you might have a chance at a successful turnaround. If the debt is going the other way than it's likely shareholders will end up with nothing even if the company continues to exist. I.e. GM is still around but the shareholders got wiped out. Betheham Steel on the other hand is completely gone. Who knows what happens with Eastman Kodak.

Maybe the best investment strategy for the DOW would be to buy the companies when they are added to the DOW. They tend to stay in the DOW and be successful for awhile.

[The Virginian]

Beenherebefore,

What is your target price for alcoa? Getting near it's 52 week low. Is now the time to buy?

[The Virginian]

Maybe the best investment strategy for the DOW would be to buy the companies when they are added to the DOW.

We could call them "Top Dogs" - ;D

[beenherebefore]

Virginian, I bought it at 8.55 and it sold yesterday for 9.50. I put in a conditional sell order at the time we bought it.

After earnings, I'll take another look at Alcoa. I've been taking profits where I see them and not holding things too long, since mid 2011.

I've done this with AA four times this year and am ahead by more than 25%. This brings the question of buy and hold vs buy and sell over and over again, what is the net net difference? More transaction fees? To me it's risk management, I haven't been comfortable buying and holding, at least not so far.

What do you think?

[beenherebefore]

ROTF!!!

How about New Dogs on the Block? ;D

[The Virginian]

I'm all about buying and holding ( Over 8% last year) but I would like to dabble in something like you are doing. If I do it in an IRA it should limit any tax consequences.

25% return is very good. It's hard to argue against that.

[beenherebefore]

There's more than one way to skin a cat.

Overall, I'm not far from you.

[beenherebefore]

Thanks for your reply, Disenfranchised Investor, and I don't think your approach is stupid at all. You guys just probably have more guts than I do. BTW your capitalization approach reminds me of someone with whom I used to post, many years ago.

[beenherebefore]

livinincali, another example of what you posted about is Kodak, used to be in the Dow 30 and now is on the edge of Bankruptcy. Too bad the management there didn't deal with the technology change. It used to be a great company.

[bimetalaupt]

Jan 5, 2012 18:42:48 GMT -5 beenherebefore said:

livinincali, another example of what you posted about is Kodak, used to be in the Dow 30 and now is on the edge of Bankruptcy. Too bad the management there didn't deal with the technology change. It used to be a great company.

Been here before,
I found you thanks to Mr.V. and FTI., You write very well!! and I do like your thought patterns. Welcome aboard!!!
EK had a run at the future with digital and dropped the lead. Now also one of the Japanese camera makers (Olympus) is also in a problem area with bad management. It is all about cost.

If you want to define all the factors into one then DCF or as Valupro calls it Intrinsic Stock Value.. an example would be AA with an ISV of $0.37...That is better then my C at $0.00.. Lucky I sold enough to pay for the stock and return a little money to me.

Keep in touch,
Bruce

[beenherebefore]

Bruce! So nice to 'see' you, it's been a long time. I'll be around, I like it here. :-)

[bimetalaupt]

Jan 5, 2012 19:57:32 GMT -5 beenherebefore said:

Bruce! So nice to 'see' you, it's been a long time. I'll be around, I like it here. :-)

Been here Before,My mother watch the charts all day and my Father did the analysis..Mother would chart the stocks dad found interesting.. They well as a team..
Thank-you .. K4U!!

Bruce

[clarkrl2]

Rather than use the 10 highest yielding stocks, I like to use the 10 lowest PE - yield. At this time the 10 lowest ranked by PE - yield are: JPM, CVX, HPQ, MSFT, INTC, XOM, AA, DD, T, KO
I also tend to use bull put spreads(Sell an out of the money PUT and buy a PUT at a lower strike with the same expiration. Currently I have positions in HPQ and T. There is also a position in TRV that was in the top 10 at the time the position was entered.
When I first posted this strategy beerfan suggested maybe using P/FCF - yield would be better and I liked the idea but haven't tested it yet. I think I would be skeptical of entering a new position in a Dogs of the Dow strategy if the free cash flow for the trailing 12 months wasn't positive. CVX, INTC, XOM, DD, T, KO all have P/FCF ratios that are above 20 but I think all should be able to maintain their dividend.

[IPAfan]

I still like the P/FCF metric, but again I feel like one metric is too risky with this few stocks.

One interesting idea would be to create a portfolio where you own several "dogs of the dow" by focusing on portfolios of p/fcf, p/e/, p/d, ROIC...you'd probably own MOST of the dow stocks that way, but would overweight in companies that are undervalued by multiple screens.