Best in Show: Dogs of the Dow

 | Jan 03, 2012 | 12:15 PM EST
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This time of year everybody publishes "Dogs of the Dow" articles. They claim if you bought a basket of the 10 worst-performing (highest yielding) Dow stocks from the previous year, you'd be rich now and wouldn't be stuck in a studio apartment in Queens without air conditioning.

And every year you vow to buy those dogs when the new list comes out.  But you never do because who has time to follow 10 stocks?  Another unfulfilled New Year's resolution.

But I have a way make it easier for you to join the 1-percenters. Simply eliminate the real dogs. Let's face it, most of the Dogs of the Dow are real bowwows and belong on the list. In fact, if you look at the list of Dow Dogs over the years you'll see a number of names that have been put up for adoption. These are not companies that have fallen on hard times for a year and are accidently high yielders. They are serial underperformers.

Take DuPont (DD), for example. DuPont has been on the list since 2000. (It might have been a dog longer, but I only went back to 2000.) Eleven years as a Dow dog has got to send some kind of message. Maybe that message is: don't bother investing in our company because you're wasting your time.

Could this be the year for DuPont to shine? Could the stock soar and you'd be angry you didn't stick to the formula? Sure. But let's be realistic. Eleven years, people. (Imagine DuPont executives handing out stock options to employees as a Christmas bonus, thinking they are giving out this big gift. I think I'd have more fun with a box of chocolate Santas.) DuPont has underperformed the S&P 500 and DJIA since 2000. With a yield of 3.58%, DuPont makes my "2012 Real Dow Dog" list. Woof!

Or how about Pfizer (PFE)? By eliminating Pfizer from your life, you could have saved yourself a lot of disappointing New Years. Pfizer joined the Dogs in 2005 and since then Pfizer has managed to sit in the kennel and underperform both the S&P 500 and the DJIA. Even with a strong bounce in December, this mangy mutt is down more than 40% since 2000. Who wants to deal with that? You think a 3.7% yield is going to make up for that? No way. Bad dog.

Or how about Merck (MRK)? Merck looks like a car hit it. Since 2000 the stock is down more than 45% and has been on the Dogs list since 2004. Woof Woof!

By simply eliminating three names from the Dogs of the Dow, I've saved you a ton of aggravation. Now you can focus on the remaining seven because, in reality, most of the performance of the Dogs comes from just two or three stocks. With a little work, I bet you can sniff out 2012's best performing canines.



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