A More-Selective “Dow Dogs” Strategem For 2011: Pick Pfizer, Over Merck


Here on the last NYSE trading afternoon of 2010, Seeking Alpha is hosting/running a piece authored by the folks who’ve written a treatise on Graham & Dodd investing — at R.W. Wentworth & Co. The thesis is to choose “Dogs of the Dow” as pairs, then toss the lower performer, thus:

. . . .[W]e take a more reasoned approach by dividing the ten “Dog” stocks (as of December 30th) into pairs, and then selecting the more attractive of each pair. If we can beat the “Dogs” group itself, we have a better chance of beating the Dow as a whole, if 2011 turns out to be a year when the “Dogs” underperform. . .:

• AT&T, 5.86%, and Verizon, 5.48%. The former telecom is now trading “wide” (with a higher yield) than the latter. That is usually not the case, so we pick AT&T.

• Pfizer, 4.57%, and Merck. 4.22%. Again, the former pharmaceutical is trading “wide” of the latter. And after a 2009 cut, Pfizer‘s dividend is rebounding, and will likely “grow” back to over $1 a share, while Merck’s has been constant for some years. So the gap between “yield on cost” will likely widen.

• Kraft, 3.68%, and Johnson & Johnson, 3.49%. Two “marketing” companies with similar yields (although rather different products). But JNJ has the better franchise longer term, provided its current problems don’t destroy its “brand.” This is reflected in the fact that JNJ’s current yield is high relative to its history, and Kraft’s isn’t. . . .

Not much of a surprise here, as I’ve been making this point — repeatedly — for about six, erh thirty months, now. In any event, Happy New Year, one and all!

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