Dow Dividend Recommended Strategy


What follows was first written in the mid-1990s and last revised in early 1999. For the several years, I have no longer been following the 2YR strategy discussed below. The severe losses in quite a few of the issues in 2008, which were far worse than the damage done to Dow stocks during the 2001-02 bear market, called into question my thinking that the stocks in the Dow were relatively safe and almost certainly to recover. General Motors effectively became worthless, and AIG and Citigroup have lost so much of their value that it will be at least a decade, if ever, before they return to the levels seen at the end of 2007. Also, many years ago the Motley Fool abandoned their dividend-based methods of trading the Dow stocks that had several revisions and variations over the years.
(January 24, 2010)

For those who want to be aggressive, the Motley Fool's Foolish Four strategy is attractive. You should check out the Motley Fool web site for more information. A link to that site is provided on my investing page. As I discuss a bit more on the strategy description page, I think this strategy, which doubles up on the second lowest priced stock among the ten highest dividend yields, is a bit contrived.

My recommended strategy, which I personally use, is the two year combined (2YR) strategy executed around the beginning of the year. In that strategy an equal amount of money is invested in the stocks that qualify for the current year "Beat the Dow" five stock list (BTD5) or qualified for the prior year. That means that each stock purchased will be held for at least two years. My starting month research shows that the best time to execute the strategy is right around the beginning of the year. This time has an advantage for taxable (non-retirement) accounts. Sales can be timed to fall in the most useful year by selling in late December or early January. The exact timing depends on the investors tax situation and whether the stocks to be sold are showing a gain or a loss.

Starting the strategy is relatively easy. Buy an approximately equal dollar amount of the stocks on the combined BTD5 lists. It may be necessary to wait until late in December or even after the close on the last trading day to determine the lists. After a year, it will probably be necessary to adjust and rebalance the portfolio. The adjustment consists of selling those stocks from the older list that were not on the newer list or the new BTD5 list and buying those stocks on the newest list. For example, say one had started at the beginning of 1995 by buying the stocks on the 1994 and 1995 BTD5 lists. At the beginning of 1996, that investor would sell the stocks on the 1994 list that were not on either of the 1995 or 1996 lists. In order to have a roughly equal dollar amount invested in all the stocks, the investor would likely need to buy or sell some shares of one or more of the "continuing" stocks (those on the 1995 list or which are on both the 1994 and 1996 lists).

There is an additional discussion of implementation issues on the How To Do It page. Also, the This Year's Performance page shows the stocks that would have used in the strategy for this year and the theoretical return as of the end of last month.

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