After years of sluggish performance, the ‘Dogs of the Dow’ are back on track and outperformed the Dow Jones Industrial Average (DJIA) benchmark in 2013 by 400 bps. This is apart from the fact that the Dow generated the biggest annual gains in 18 years with 26.5% return.
The Dogs generally represent the 10 highest yielding DJIA blue chip companies that are near the bottom of their business cycle and thus pay higher dividend yields (due to depressed stock prices) (read: 3 Best Dividend ETFs of 2013).
High dividend yields suggest that these stocks are in the oversold territory and will rebound faster than any other stock when the business cycle changes. This would result in higher capital appreciation over the one-year period along with juicy yields.
For 2014, the Dogs of the Dow include AT&T (NYSE:T), Verizon (NYSE:VZ), Merck (NYSE:MRK), Intel (NASDAQ:INTC), McDonald’s (NYSE:MCD), Pfizer (NYSE:PFE), Chevron (NYSE:CVX), Cisco (NASDAQ:CSCO), General Electric (NYSE:GE) and Microsoft (NASDAQ:MSFT).
Investors could easily play these Dogs with the only pure play product in the space – ELEMENTS DJ High Yield Select 10 ETN (NYSEARCA:DOD). The ETN follows the Dow Jones High Yield Select 10 Total Return Index, which uses the Dogs of the Dow strategy by investing in the stocks with the highest dividend yield in DJIA.