The Dogs of the Dow strategy is a value-oriented strategy that focuses on purchasing the 10 highest yielding Dow stocks on the first day of every year. The idea is that these companies are good, stable companies that have fallen on temporary hard times, artificially inflating their dividend yields. According to James O'Shaughnessy, the Dogs of the Dow strategy from 1929 until 2003 returned 14.3% a year, outpacing the S&P 500's 11.7% per year. In 2006, the Dogs of the Dow strategy returned 22%.

At Stockpickr, here is the list of the Dogs of the Dow for 2007. . Additionally, I plan on rebalancing the list each month so you can play a monthly Dogs of the Dow strategy. To get notified everytime the rebalancing occurs just bookmark the portfolio by rating it with four stars. Also, I think just as interesting is the Dogs of the S&P 500, which I plan to keep track of on a regular basis.

The highest yielding company in the Dow is Pfizer, with a 4.4% dividend yield. Pfizer was actually slightly up in 2006 but fell about 10% off of its highs reached in mid September when they announced in December that they were removing their torcetrapib drug from the FDA process because of deaths during testing. This called into question the quality of their pipeline although Bank of America analyst Chris Schott, who still has a Buy on the stock, thinks their current pipeline is "underappreciated".

Furthermore, earnings estimates are actually higher now for 2007 than they were 90 days ago. Analysts are expecting te company to earn 2.18 per share in 2007 as opposed to the 2.12 they thought 90 days ago, giving Pfizer a forward P/E of just 11. While this might be baking in the news of problems in their pipeline, it seems like the worst news is behind them.

In addition to being in the Dogs of the Dow, other portfolios that contain Pfizer include that of super value investor David Dreman , Warren Buffett's old broker, Tweedy Browne (and home of Chris Browne, author of the Little Book of Value Investing), hedge fund Traxis Partners, run by ex-Morgan Stanley chief strategist Barong Biggs, who is also author of Hedgehoggin'. To see the full list of pro portfolios and do-it-yourself portfolios that own Pfizer, check out Pfizer's Stockpickr page..

Another rmember of the Dogs strategy and also popular with the top hedge funds and mutual funds is Citigroup. Currently yielding 3.50%, Citigroup's CEO, Chuck Prince has come under recent pressure to step down and there are various rumors that the company is going to split up. My guess is 2007 brings some resolution one way or the other and the company returns to historical P/E levels. Right now they are trading at just 12 x next year's earnings and their dividend at 3.5% is significantly higher than that of its competitors: fellow Dow component JPM gives out a 2.8% yield.

Bill Nygren at the Oakmark funds is a big holder of C as is theDodge and Cox stock fund, a mutual fund family which has easily outperformed the S&P 500 over the past 20 years.

Another dog of late has been