The Dogs of the CAPS

I like dogs. They're loyal and friendly. And when it comes to investing, they can indeed be your best friend.

Most investors have probably heard of the Dogs of the Dow strategy. Rank the dividend-yielding stocks from highest to lowest, and buy the top 10. Hold for one year and a day, and sell. Then do it all over again. Wash. Rinse. Repeat.

Four Dog Night
The Motley Fool even used to follow a strategy called the Foolish Four, which built on the original strategy by ranking those high-yielders by price -- lowest to highest -- and buying just four of the top five stocks (if the cheapest stock is also the highest yielder, throw it out, because it's probably a real dog). While the Fool abandoned the strategy because of doubts about its success, some sites still track results. Over 25 years, the Dogs approach has amassed a pretty impressive record, with annualized gains of 17.7%.

As I said, I like dogs. The Foolish Four was my first advance into investing in individual stocks, so I've always carried a warm spot for it in my heart. With the Fool's own foray into its newest investor intelligence ratings, I thought Motley Fool CAPS would be an interesting addition to the strategy. More than 94,000 professional and novice analysts have rated more than 5,500 stocks, with the best stocks earning five stars.

Last year, I postulated that using a CAPS strategy on top of the Foolish Four might hold some surprises for us. Since then, we've been tracking how these dogs are running each month. We'll continue to walk these top 10 dogs to see how they're doing all year long. Here's the list of 2008's Dow dogs and their returns so far.

Company

End
2007 CAPS Rating

Current CAPS Rating
(5 max)

Price 12/31/2007

Price 3/31/2008

YTD Gain (Loss)+

Citigroup

**

**

$29.44

$21.42

(27.24%)

Pfizer (NYSE:PFE)

***

***

$22.73

$20.93

(7.92%)

General Motors

*

*

$24.89

$19.05

(23.46%)

Altria (NYSE:MO)++

*****

*****

$23.31

$22.20

(4.76%)

Verizon (NYSE:VZ)

****

****

$43.69

$36.45

(16.57%)

AT&T

****

****

$41.56

$38.30

(7.84%)

DuPont (NYSE:DD)

***

****

$44.09

$46.76

6.06%

JPMorgan Chase

**

**

$43.65

$42.95

(1.60%)

General Electric (NYSE:GE)

****

****

$37.07

$37.01

(0.16%)

Home Depot (NYSE:HD)

**

**

$26.94

$27.97

3.82%

Philip Morris (NYSE:PM)++

NR

*****

$51.06

$50.58

(0.94%)

           

Dogs of the Dow (all 11)

       

(7.97%)

FF CAPS Dogs

       

(6.06%)

Top-Rated Dogs (3-5 Stars)

       

(4.59%)

Dow 30

       

(7.55%)

S&P 500

       

(9.92%)

+ Excludes dividends, commissions, and taxes.
++Philip Morris was spun off from Altria after market close on March 28, 2008, and began trading on March 31. The spin-off price is used as the starting price. Altria's prices have been adjusted to reflect the spinoff.

There's been a change in our group of CAPS dogs. As you might have noticed, we've got a Dow 11 instead of 10. That's because Altria finally split off its Philip Morris division after the market closed last Friday, so we've adjusted the parent's shares to reflect the $51.06 value of the spinoff. And since Altria shareholders get Philip Morris shares, we'll be including that as part of our coverage going forward.

GE, that's terrific
General Electric found that March came in like a lamb and went out like a lion, rising nearly 12% on the month. The conglomerate's CEO, Jeffrey Immelt, announced in the company's annual report that even in the face of a slow U.S. economy, its various arms not related to consumer spending should offset any weakness those units felt. He foresees a 10% increase in profits per share in 2008 and expects GE's commercial finance, health-care, and entertainment divisions to do quite well.

It's that broad industry diversification that CAPS players enjoy. Just a few days ago, 16tigers wrote that this makes General Electric an attractive staple for a portfolio.

General Electric is a stable and well rounded company that is and always has been here to stay. They have their foot in almost every door, from financial services and ocean transportation to home appliances and industrial products. GE's diversification into many industries has insulated them against major market fluctuations, and has made them an excellent investment to keep over the long run.

What's it all about, Wolfie?
I'd be remiss if I didn't mention that I no longer invest using mechanical investing strategies like the Dogs of the Dow or the Foolish Four, but I do keep an eye on how they perform, for nostalgia's sake.

As smart as our Foolish investors are, this is a contrarian investing strategy that tries to stand market wisdom on its head. I'll keep you posted on how our CAPS Dogs are running.

If you want to get your own CAPS dog in the race, just click to get started. It's 100% free.


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