Mid-December is a great time to check out the “Dogs of the Dow.” As the year comes to a close, I line up the current canine contenders to see which ones comprise the final line-up to be the “hot investing dogs” of 2016.
For the uninitiated, the “Dogs of the Dow” is an investing strategy in which yield-hungry market players target the top five or ten dividend-paying stocks in the Dow Jones Industrial Average. Many times, these “dogs” will out-perform their lower dividend Dow siblings in the year to come.
The strategy began with H.G. Schneider, who wrote an article published in the Journal of Finance, in 1951. Schneider stated that blue chip companies rarely alter their dividends to reflect trading conditions or the market environment. He contended that the dividend, itself, is a measure of the average worth of the company. The company’s stock price, however, fluctuates throughout the business cycle.
Therefore, companies paying a high yield—meaning a substantial dividend relative to share price—may be trading near the bottom of their business cycles and in oversold territory. Just so, they are likely to experience a rise in their stock prices faster than low-yield companies (which may be overbought).
Dogs of the Dow investors’ expect to bring home increased capital gains from better-than-usual stock price momentum as well as a relatively high quarterly dividend.
Now, let’s look at the current Dogs.
Yes, I realize that we’re a bit early to be nosing around—the official results won’t be in until the final numbers are in at the close of the final trading day of this year, Thursday, December 31st. Still, I can’t resist peeking. The table below shows the current Dogs of the Dow, and their yields, as of December 6th.
Please know that the names on this list may shift slightly by the time you read this.
As well, the Fed announcement on December 16th may cause Dow components to shift in share price; some components may drop off this “Dog List,” and others may takes their place. Still, this gives you an idea of the potential contenders for 2016.
As of December 6), the top Dow Dog is AT&T Inc. (T), currently paying a sweet dividend of 5.68%.
If we check it out on a weekly chart (below), we see that the telecom giant is currently trading at $34.21 per share. It has bounced off of strong price support (blue line) at $32; it has also climbed above its 14-week moving average (dark green line), which offers support at $33.
If AT&T continues to trade above $32 – $33 in coming weeks, it may be a “Hot Dow Dog” in the first quarter or half of next year.
In conclusion, as we move through December, you may want to check out any Dow Dogs that appeal to you now. After all, at least some of them are sure to become the Hot Dow Dogs of 2016!
Merry Christmas and Happy Holidays!
Keep green on your screen,
Toni Turner is the President of TrendStar Group, LLC, is an accomplished technical analyst as well as a popular educator and sought-after speaker in the financial arena.
She is also the author of best-selling books: A Beginner’s Guide to Short-Term Trading, Short-Term Trading in the New Stock Market and Invest to Win: Earn and Keep Profits Bull and Bear Markets With the GainsMaster Approach, co-authored with Gordon Scott, CMT.
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