It's that time of year again. It's time to select this year's "Dow dogs" and begin looking toward Dow theory, which has the 10 highest yielding Dow Industrials components tending to outperform the Dow Industrials itself. A theory that is based on "value" as depicted by higher yields found among the Dow components.
As of today's intra-day pricing, I've taken the 30-components of the Dow Industrials (INDU) 8,347 +0.18% and sorted them by their annual dividend yield.
At the bottom of the following chart, the 10-stocks with the highest yield qualify as 2003's "Dow Dogs."
Dow Dogs Spreadsheet - Sorted by dividend yield
IP, CAT, GE, HON, DD, SBC, EK, GM, JPM and MO look to be this year's "Dow Dogs" and by session's end, who knows? AT & T (NYSE:T) $26.65 +2.3% might take IP's spot, but this is how things looked as I populated the spreadsheet above.
Dow theory also points to some slight out performance in a subgroup of the "Dow Dogs" in that the 5-lowest prices of the 10 highest yielding components tend to outperform. That would have IP, GE, HON, SBC and JPM as the 5 lowest priced stocks with higher dividend yields.
While the above is simply a "fundamental" type of Dow theory, technicians will ad a twist and look for those "dogs" that exhibit some form of positive relative strength. You know, some of the "dogs" that actually look to be showing some gain of favor.
While it would be difficult to find a "dog" that is outperforming the Dow, I've labeled IP, CAT, DD and EK as stocks among the 10 that show some sign of "life" in their relative strength charts. The symbol "RS - +" depicts the stock's relative strength point and figure chart versus the Dow Industrials currently showing a RS "sell signal," but currently showing a column of X, or improving relative strength.
Longer-term investors and LEAPS option traders might be well served to incorporate "Dow Dog" theory into this year's investment strategy.
While I have done NO technical analysis on IP, CAT, DD or EK, these four stocks would be a place to begin looking for 2003's potential top Dow gainers.
Who knows? Maybe today's 6.9% gain in Honeywell (NYSE:HON) $24.03 has some "Dow dogs" fetching the first bone and making an early selection for 2003.
And Honeywell (HON) would be today's "spotlight" of any type of excitement. The company did announce today that it was funding its employee pension plan with $700 million in stock to its defined benefit pension plans along with $100 million in cash. In a November filing with the SEC the company had said that its employee pension plans would end 2002 with a $1.7 billion deficit if new funds were not added.
As we turn the corner on the half way point of the last trading session of the year, the major indexes are trying to finish off a bearish year with a bullish session as the Dow Industrials (INDU) 8,339 hold a 6-point gain after dipping to a session low of 8,242 after a weaker than expected December consumer confidence reading of 80.3, which was below consensus of 86.
The S&P 500 (SPX.X) 880 holds a 1-point gain, while the narrower S&P 100 (OEX.X) 445 shows a half-point gain. The larger capped NASDAQ-100 Index (NDX.X) has been teetering around the unchanged levels and has tended to follow intra-day bullishness as if taking its "q" from the other major indexes.
Sector action which was mixed near the open, that then turned broadly negative, has now flipped and the bulk of sectors are back in the green with Airlines (XAL.X) 38.63 +3.37% and Disk Drives (DDX.X) 69.49 +2.99% taking today's top sector spots. Home Construction (DJUSHB) 304.43 -0.64% is currently the largest sector decliner.