The Gods Of The Dow

by: Iron Value

The Dogs of the Dow back-tests quite well for total returns.

But what if one was to back-test for the 10 lowest-yielding stocks of the DJIA.

I perform the back-testing for the Gods of the Dow in the following piece.

See the results.


Given that the year end is approaching, I thought it would be fun to write a piece about a well-known investment strategy with a twist. At this time of year, we tend to be looking at our portfolios, our performance and we are maybe wondering should we refine our thinking about stock selection. In my own case, I felt I have overweighted on many high-yield value stocks that are struggling to make a capital return. As such, I do question whether I should rebalance my portfolio with lower-yielding momentum stocks. Analyzing the Gods of the Dow is a reasonable proxy to how one might fare with a low-yield, momentum-based approach to stock selection.

What is the Dogs of the Dow

The Dogs of the Dow is a well-known investment strategy that back-tests very well for total returns and indeed dividend income. On the 31 December each year, the investor buys the 10 highest-yielding stocks of the DJIA, holds them for a year, collects the dividends in the meantime and then sells the 10 dogs on the following December 31st. The investor then repeats the process year after year.

The Dogs of the Dow is not a bad investment strategy that comes with several merits:

  • You are buying well-known blue chips of the Dow Jones
  • The stocks are very liquid
  • The stocks come with a high yield
  • The stocks are selling at good value (but probably for good reason)
  • The approach is quite passive and doesn't require much work
  • And the historic results are reasonably good as the following graphic shows.

The Dogs of the Dow on 31 December 2014 were:

(NYSE:T) AT&T 33.59 5.48%
(NYSE:VZ) Verizon 46.78 4.70%
(NYSE:CVX) Chevron 112.18 3.82%
(NYSE:MCD) McDonald's 93.7 3.63%
(NYSE:PFE) Pfizer 31.15 3.60%
(NYSE:GE) General Electric 25.27 3.48%
(NYSE:MRK) Merck 56.79 3.17%
(NYSE:CAT) Caterpillar 91.53 3.06%
(NYSE:XOM) ExxonMobil 92.45 2.99%
(NYSE:KO) Coca-Cola 42.22 2.89%

The Gods of the Dow

I wanted to flip the Dogs of the Dow on its head and look at the performance of the 10 lowest-yielding Dow stocks over the last several years. Low yields imply that a stock is highly valued by the market usually due to recent growth fundamentals. Investors might expect some short-term capital appreciation by employing a Gods strategy, which in turn can lead to short-term anxiety-free investing. In contrast, the "Dogs" approach to investing can lead to a good deal of short-term pain, high levels anxiety and double-guessing. The risk with the "Gods" is that you may have missed the growth boat and will be left holding both a capital loss and low yield to boot.

Here is a list of the Gods of the Down on 31st December 2014:

(NYSE:MMM) 3M 164.32 2.08%
(NYSE:TRV) The Travelers Companies 105.85 2.08%
(NYSE:UTX) United Technologies 115 2.05%
(NYSE:HD) Home Depot 104.97 1.79%
(NYSE:UNH) United Health Group 101.09 1.48%
(NYSE:DIS) Disney 94.19 1.22%
(NYSE:NKE) Nike 96.15 1.16%
(NYSE:GS) Goldman Sachs 193.83 1.14%
(NYSE:AXP) American Express 93.04 1.12%
(NYSE:V) Visa 65.55 0.73%

The dogsofthedow website provides an annual snapshot of the Dow 30 components (with price and yield) on the 31st December of each year all the way back to 1996. I have to say that it was very difficult to find this information on Google and it's a little bit hidden on the dogsofthedow website.

So, I was able to copy these annual snapshots of the Dow 30 into a spreadsheet and work out the returns of the Gods of the Dow Vs. the Dogs of the Dow. I went back 10 years. Here are the results.

2005 2006 2007 2008 2009
Dogs -3.46% 25.80% 2.10% -36.56% 17.19%
Gods -2.85% 13.60% 6.80% -37.48% 20.28%
2010 2011 2012 2013 2014
Dogs 21.43% 16.85% 8.95% 28.54% 5.45%
Gods 2.87% -0.11% 7.09% 25.81% 10.40%

It may be hard to tell from the above but the Dogs beat the Gods quite comfortably. The relative outperformance of the Dogs over the Gods is better illustrated with a graph.

The true outperformance is best explained by considering how well a $10k investment in each strategy on 31 December 2004 would have fared.

Over the 10-year period, the Dogs constantly outperformed the Gods with material outperformance occurring from 2010 onwards.

The Dogs strategy would have nearly double your money in 10 years, turning $10,000 into $19,320.

The Gods strategy would have not performed nearly as well, turning $10,000 into only $13,550.


First of all, I want to qualify the above analysis with the observation that it is only based on 10 years of data.

However, what we can conclude from the above dataset is that a value-based approach to investing with a focus on good dividend yield has worked very well over the last decade.

My impression is that the Dogs philosophy to investment has not worked too well this year. This impression is confirmed when I work out the numbers. The year-to-date return for the Dogs is negative: -1%. In contrast, the Gods of the Dow have returned +8% YTD (to 27 November 2015) - a material outperformance.

Though I do not copy or employ the Dogs strategy, I do follow its spirit and tend to buy stocks at what I think is good value and usually with a decent yield of 3%+. The Dogs of the Dow is probably a reasonable proxy of how I approach my investment. My portfolio, I feel, has broken even this year (much like the Dogs). December will be critical in determining whether I have a good year or bad year.

The above data and analysis suggest that I should stick the course with my value/income approach to investing for the long term.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.