Best Picks List 2013 - My Holdings (Part 2)

My Holdings - Part 2

Dogs of the Dow Theory - Every year at the beginning of the year the top 10 stocks of Dow Jones Industrial Average ranked by their dividend yields are coined the 'Dogs of the Dow'. Although the return varies from year to year for the 'Dogs of the Dow', they are very stable blue-chip companies with consistent dividend payments and dividend growth. Investors seek shelter in them in troubled times and during those times the 'Dogs of the Dow' tend to outperform the market. Hence the presence of 'Dogs of the Dow' in a portfolio add both income and stability and preferred by investors. For the last few years with fixed income instruments/securities offering very minimal yields, investors are looking elsewhere to compensate for their appetite for income and the 'Dogs of the Dow' offers them a very good alternative. Some of the top 'Dogs of the Dow' have performed very well in 2012 including AT&T (NYSE:T), Pfizer (NYSE:PFE), General Electric (NYSE:GE), etc. offering investors +20% total return (including dividends), handily outperforming the overall broader market (S&P 500). Hence it makes sense to take a look at closely the 'Dogs of the Dow' for 2013 and deciding which ones can generate good returns.

The top 'Dogs of the Dow' for 2013 are: AT&T (NYSE:T), Verizon Communications (NYSE:VZ), Intel Corporation (NYSE:INTC), Merck & Co. (NYSE:MRK), Pfizer Inc. (NYSE:PFE), etc. As Intel Corporation is struggling to make its presence felt in the hugely growing smartphone and tablet chips market, I think Intel will remain a 'Dog of the Dow' for a while unless it does some 'smart' acquisition or device a way for its chips to be present in the popular smartphone and tablets (i.e. Apple and Samsung devices). 

On the positive side I think T, PFE and MRK offers the best upside in 2013 as the 'Dogs of the Dow' and those are my preferred holdings for 2013. Both T and MRK have pulled back significantly (+10%) from their 52 week high in 2012 and experienced some selling as investors were worried with the taxation on dividends. Fiscal cliff resolution will provide clarity on the taxation of dividends and likely will bring back investors into these names. I expect all three of these names to perform significantly well in 2013. T is the top 'Dog of the Dow' with +5% yield. Similarly MRK and PFE have close to ~4% yield each. Fundamentally a lot of positive things are going on for PFE after the company lost its patent protection on its blockbuster cholesterol drug Lipitor. PFE recently got FDA approval along with Bristol Myers Squib Co. (NYSE:BMY) for its blood thinner drug Eliquis, which has the potential to be another blockbuster drug for PFE and BMY and will keep PFE moving higher.