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Tickers in this Article: BAC, GE, PFE, DD, AA, T, VZ, MRK, JPM, KFT
The Dogs of the Dow investment strategy is based on the notion that high dividend yield stocks will outperform their poorer paying cousins over the course of an investing year. The logic behind this strategy is sound: companies at the bottom of their earnings cycles will generally carry higher yields and should move higher as business conditions improve. (For those of you who need a quick refresher, check out Stock-Picking Strategies: Dogs Of The Dow.)

The strategy recommends that investors choose the 10 highest yielding Dow Industrial stocks in January and replace them on an annual basis with the 10 highest yielding issues twelve months later.

How well did the "Dogs" do in 2009? Read on to find out whether there was any bite to this strategy.

The "Dogs" of 2009
The best yielding Dow issue on December 31, 2008, was Bank of America Corp. (NYSE:BAC), which indicated a 9.09% payout - a number that was subsequently slashed to almost nil when it was revealed how deeply bedeviled the company's balance sheet was. All the same, as of early December, BAC had returned roughly 11% in 2009.


Big Mutts, All Bark
General Electric Co. (NYSE:GE) and Pfizer Inc. (NYSE:PFE) were the next best Dow yielders last January, both with indicated payouts of better than 7%. GE entered December in slightly negative territory, while Pfizer put on a nominal gain of just a couple of percentage points.

DuPont (NYSE:DD) and Alcoa (NYSE:AA) were the next best dividend payers last year; both were above 6%, and both entered December with solid yearly performances of nearly 30%.

Two telecoms, AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) took the sixth and seventh spots in last year's Dow dividend derby, trading with indicated yields of between 5.5% and 5.75% last December 31. The two had very similar (and disappointing) results for the year, ending up flat to down a few percent over twelve months of trading.

Some of the best performances go to the next two dogs, Merck & Co (NYSE:MRK) and JPMorgan Chase & Co (NYSE:JPM), whose shares are up roughly 20% and 30% respectively for the year as of mid December. Both companies started the year with yields in the 4.8-5% range.

In 10th spot from last January is Kraft (NYSE:KFT), a newcomer to the Dow whose yield at the beginning of the year was 4.32%. KFT's performance in 2009 the year was a dud: The company ended the period precisely where it started.

The Wrap
Last year's dogs climbed an average 11%, while the other Dow components were up better than 29%. The full Dow 30 was up nearly 20%. Unfortunately, for those who took on some dogs in 2009, they proved to be no more than a bunch of flea-bitten curs. (For more, see Barking Up The Dogs Of The Dow Tree.)

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