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2007 Dogs of the Dow: All Bark, No Bite

  • May 17, 2007

The Dogs of the Dow had a spectacular 2006, posting a gain of 24.8% excluding dividends. This compared with gains of just 14.25% and 11.82% for the Dow Jones Industrial Average and S&P 500 respectively. While I was enthusiastic about the Dogs in early 2006 and used the theory to pick Pfizer (PFE) in January 2006, I decided to stay away from the Dogs in 2007 as mentioned in the January 2007 edition of InsideArbitrage.

A couple of people wrote to me this week to let me know that the real time returns calculated in the Current Dogs of the Dow page should be higher once you take into account the recent spin-off of Kraft Foods (KFT) from Altria (MO). On March 30, 2007, Altria spun off its remaining stake in Kraft and the price of its stock fell $19.59 on April 2, 2007. Since we cannot add Kraft shares to the Dogs of the Dow list, we have to make an adjustment to the price of Altria.

Based on the tax basis information (pdf) document provided by Altria on its website, I multiplied the December 31, 2006 price of $85.82 by 0.7512 to arrive at an adjusted price of $64.47 for Altria. Before making this adjustment, the Dogs of the Dow had gained 5.05% since the start of the year and after the adjustment, the year-to-date gains jumped to 7.74%. However this is still below the 8.13% returned by the entire Dow Jones Industrial Average this year.

We still have more than half the year to go before we find out if the 2007 Dogs are going to repeat their 2006 performance and outperform the indices but my bet lies with the Dow this year.