Will 'Dogs of the Dow' Become Best in Show?
The "Dogs of the Dow" -- the 10 stocks with the highest dividend yields in the 30-stock Dow Jones Industrial Average -- broke a three-year winning streak last year and failed to beat the total returns, with dividends, of the blue-chip average. Blame Vioxx-challenged drug maker Merck and financial-services titan Citigroup, among others. But next year, as the trend of more companies paying higher dividends continues, the mutts should get some bite to go along with their bark, say dog watchers.
"You've had some disasters that make it look worse than it really is," says Neil Hennessy , who oversees $1.2 billion in the Hennessy Funds, about the dogs' returns last year. Mr. Hennessy, based in Novato, Calif., manages money using a theory that recommends owning the Dogs of the Dow.
Typically, the Dogs of the Dow for any given year are stocks that have declined in the previous year. That's because the drop in the share price sends the dividend yield -- dividend divided by stock price -- higher. Some Dogs of the Dow theorists favor investing in the five highest-yielding stocks, others favor the broader bottom 10. Investors buying the dogs would want those high yields to fall over the next 12 months, assuming the dividends stay constant, because it would mean their share prices had climbed.
In 2004, the dogs suffered from sharp drops among three stocks: A 30% skid by drug maker Merck, a 25% fall by General Motors and an almost 1% slip by Citigroup, which was hurt by news of regulatory violations in Japan.
The dogs had an average dividend yield by the end of 2004 of 3.8%, the same as it was at the end of 2003, according to WSJ Market Data Group, which refers to the dogs as the Dow 10. Total average returns, including dividends, for the Dow 10 in 2004 were 4.5%, compared with 5.31% for the Dow industrials.
"When Merck gets hit, it really takes the life out of the Dogs of the Dow," Mr. Hennessy says. "It's tough for the other nine stocks to overcome something like that."
Like many investing strategies, the more people who know about theories and market anomalies such as the Dogs of the Dow, the more difficult it can be for these theories and strategies to outperform. Investors identify stocks earlier, for example, throwing off pricing and timing factors required for the theories to work. The traditional dogs are established at the beginning of each year, but those anticipating the strategy may begin investing in the expected dogs earlier.
The new pack of dogs to invest in for 2005, based on the WSJ Market Data Group information, is almost identical to last year's, except for the addition of Pfizer and Coca-Cola and the exit of General Electric and Eastman Kodak, which was removed last year from the Dow industrials. SBC Communications tops the list for 2005 with a dividend yield of 5%, up from 4.8% at the end of 2003. (Dow Jones Indexes calculate the Dow 10 as of Dec. 29; based on Dec. 31 numbers, GE would have just edged out Coca-Cola for the 10th spot.)
The 2005 dogs are, in descending dividend-yield order: SBC; General Motors; cigarette maker Altria Group; Merck; Verizon Communications; J.P. Morgan Chase; Citigroup; DuPont; Pfizer; and Coca-Cola.
This year will be better for dividend-focused investing theories, say investors and dog watchers. More than half of the companies in the S&P 500 will increase their dividend payments, while others will pay dividends for the first time, according to estimates by Standard & Poor's Equity Research. According to S&P's data collected up to Dec. 20, 376 of the S&P 500 pay cash dividends, compared with 351 at the end of 2002, when, S&P says, the turnaround in paying dividends began. The average dividend-rate increase in 2004 was 20.4%, helped by a Microsoft's special-dividend payment of $32.6 billion.
With the elimination of double-taxation on dividends in 2003, more shareholders have been asking their companies to pay out dividends, which are taxed at the individual level at a maximum of just 15%, notes Joseph Lisanti, author of S&P's investment-advisory newsletter, the Outlook, and co-author of the 1998 book "The Dividend Rich Investor."
"How do you keep shareholders when the markets are just struggling along? Pay them dividends," he says.
Mr. Lisanti works with S&P to compile another list with a snappy name: the DividendAristocrats. Unlike the Dogs of the Dow, which Mr. Lisanti says is "a mechanical technique" of investing, the Aristocrats list recommends stocks that have increased their dividends in each of the past 25 years. The Aristocrats, which tend to be in the consumer-staples, discretionary, health-care and financial sectors, typically pay steadily growing dividend yields that compensate long-term investors for swings in share price.
"The yield might look chintzy, but a long-term investor can get double-digit percentage yields on their fixed cost of investment over time," Mr. Lisanti says.
The S&P 500's 58 Aristocrats include Procter & Gamble, Target and newly added State Street. Among the Aristocrats are also some of the die-hard Dogs of the Dow: Altria Group and Merck.
Indeed, lack of turnover is one of the drawbacks of the Dogs of the Dow approach. The same stocks landing in the doghouse year after year means they either have significantly boosted their dividends or, more likely, their stock prices have fallen, which isn't what most investors in this strategy want.
Over the years, more technology and telecommunications stocks, which typically don't pay dividends, have joined the Dow Jones Industrial Average, while some regular dividend-paying stocks have left. As a result, "you're only ever looking at about 15 stocks in the Dow each year," says Charles Carlson, who publishes an investment newsletter called Dow Theory Forecasts and advocates a theory that buys only the most underpriced Dow stocks each year.
"If you're trying to use a theory to beat the index by only investing in the stocks of the index, then you have to have a metric that's applicable to all stocks in measuring their popularity with investors," says Mr. Carlson, whose list of 10 "Dow Underdogs" for 2005 include some of the Dogs of the Dow, along with 3M, Alcoa, Hewlett-Packard, Intel and Microsoft. Last year's underdogs lagged behind the index slightly. "The problem child was Merck," Mr. Carlson says.
“道指之犬”尚能吠否？
被誉为“道指之犬”的道琼斯指数成份股10佳股票连续3年总回报率超过蓝筹股平均水平的辉煌终于于2004年划上了句号。究其原因，除了其他因素外，药品生产商默克公司(Merck & Co.)的畅销药Vioxx由于存在严重诱发心血管疾病的隐患而被迫撤出市场、以及金融服务业巨头花旗集团(Citigroup)因为日本业务违规消息而致使公司股价受到严重打击恐怕算得上是主要根源。但据那些关注“道指之犬”的人士称，伴随越来越多的公司日益加大派息数额，来年这些犬们在继续吠叫的同时当能有一些实实在在的斩获。
旗下掌管著12亿美元资金的Hennessy基金的经理人尼尔?轩尼诗(Neil Hennessy)谈及“道指之犬”去年的回报率时说：“不意中发生的一些灾难使得势态看上去比实际情况要糟。”Hennessy基金总部设在加州诺瓦托，该基金所遵循的投资理念便是建议持有“道指之犬”股票的理论。
通常来说，每一年被圈定为“道指之犬”的股票皆是前一年股价有所下跌的个股。之所以如此是因为股价的下跌会使一只股票的股息收益率──即派息额除以股价所得出的数值──增高。一些“道指之犬”理论的拥趸者喜欢投资于股息收益率最高的5只股票，而另一些人则青睐股息收益率垫底的10只个股。买入“道指之犬”的投资者寄望于这些股票的股息收益率在今后12个月里出现回落，因为在派息额不变的情况下，股息收益率的下降便意味著股价的升高。
2004年的“道指之犬”中有3只股票股价出现了大幅下挫：默克下跌了30%，通用汽车(General Motors)下跌了25%，花旗集团下跌了1%。
据WSJ Market Data Group的数据，截至2004年底，10只“道指之犬”的平均股息收益率为3.8%，与2003年年底时相同。它们包括股息在内的平均总回报率为4.5%，而道琼斯指数的平均总回报率为5.31%。
轩尼诗说：“默克之受创实在是要了道指之犬的命，其他9只犬儿著实是无力回天。”
和许多其他的投资策略一样，诸如“道指之犬”这样的理论，知道的人越多，其结出硕果的难度就越大。投资者会提前圈定这些股票而完全忽略这些理论发挥效用所必须的价格和时间因素。传统上“道指之犬”都在每年年初时圈定，但熟知这一理论的投资者可能会提前将资金投入他们料想会成为“道指之犬”的股票。
根据WSJ Market Data Group数据而圈定的2005年“道指之犬”阵容几乎与去年一样，只是多了辉瑞(Pfizer)和可口可乐(Coca-Cola)，少了通用电气(General Electric)和被从道指成份股中移除的伊士曼柯达(Eastman Kodak)。西南贝尔(SBC Communications)高居股息收益排行榜榜首，股息收益率由2003年年底时的4.8%升至5.0%（道琼斯指数列出的道指成份股前10名所根据的是12月29日的数据；如果按照12月31日的数据计算，则通用电气将取代可口可乐位居第十）。
对派息率按从高到低的顺序排列，2005年的“道指之犬”依次分别是西南贝尔、通用汽车、菲利普莫里斯集团公司(Altria Group)、默克、Verizon Communications、摩根大通(J.P. Morgan Chase)、花旗集团、杜邦(DuPont)、辉瑞和可口可乐。
投资者和“道指之犬”观察人士认为，那些看重派息的投资者将在2005年取得更大的回报。据标准普尔公司的股票研究部门透露，标准普尔500指数半数以上的成份股将增加派息，还有一些公司将首次派息。标准普尔收集的截至12月20日的数据显示，500只成份股中有376家公司派发了现金股息，这个数字高于2002年年底的351家。标准普尔表示，从2002年年底时，派息趋势开始出现了复苏。受微软(Microsoft)派发326亿美元特别股息的推动，2004年平均派息率增长了20.4%。
标准普尔公司负责撰写投资简讯《展望》(Outlook)的作者约瑟夫?里桑蒂(Joseph Lisanti)表示，在2003年取消了对股息双重征税之后，越来越多的股东要求他们的公司派息。目前针对个人股息所得征税的最高税率也只有15%。
里桑蒂表示，在市场不景气的时候派息可以帮助留住投资者。
里桑蒂在标准普尔还负责编写另一个荐股栏目：《派息股中的贵族》(DividendAristocrats)。里桑蒂表示，和“道指之犬”这个呆板的投资理论不同的是，《派息股中的贵族》栏目推荐的是过去25年来每年都增加派息的股票。这些股票往往存在于消费品、非必需品、保健及金融领域，它们一般是通过稳步增加派息率来为长线投资者补偿股价波动带来的损失。
里桑蒂表示，虽然一次的股息额可能难以拿得出手，但假以时日，长线投资者就能取得两位数的百分比派息率。
位居标准普尔500指数成份股“贵族”之列的股票包括宝洁(Procter & Gamble)、Target以及道富银行(State Street)。当然，一些“道指之犬”也赫然在列，如菲利普莫里斯和默克。
实际上，没有考虑到成交量这个因素是“道指之犬”理论的一个不足之处。一只股票连续地成为“道指之犬”意味著这只股票要么大幅地提高了派息，要么其股价下跌，一般来说，后一种的可能性要更大一些，但显然股价下跌不是大部分信奉“道指之犬”理论的投资者所希望看到的。
多年来，道琼斯指数把越来越多的科技股及电信股纳为成份股（这两大类股票往往不派息），同时将一些定期支付股息的股票拒之门外。投资简讯《道氏理论预言》(Dow Theory Forecasts)的出版人查尔斯?卡尔森(Charles Carlson)表示，这意味著信奉“道指之犬”理论的投资者每年大概只能关注约15只成份股。卡尔森主张，投资者应该只考虑每年道琼斯指数成份股中估价最低的那些股票。
卡尔森表示，如果试图用一种理论通过只投资道指成份股来取得强于道指的表现，那么就应采用一种能够适用于衡量所有道指成份股在投资者心目中受欢迎程度的标准。卡尔森推荐的2005年10只估价最低的道指成份股包括了3M、美国铝业(Alcoa)、惠普(Hewlett-Packard)、英特尔(Intel)和微软以及几只“道指之犬”。2004年这些股票的走势略逊于道琼斯指数，卡尔森表示，问题就出现在默克的身上。
