Dogs Of The Champions: An Improvement Over The Dogs Of The Dow

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Includes: ABT, ADM, BBT, BKH, BOH, BRC, BWL.A, CINF, CTBI, CTL, CVX, DBD, DOC, DOD, ED, EFSI, EMR, FITB, FNB, FRT, GCI, GE, GPC, HCP, HP, IRET, KEY, KMB, KO, LEG, LLY, LZB, MAS, MCD, MCY, MDU, MI, MO, MSEX, NNN, NUE, NWN, O, ORI, PBCT, PBI, PFE, PG, PGR, PM, RF, RPM, SON, STR, SYY, T, TEG, TGT, TMP, UBSI, UDR, UHT, UVV, VFC, VVC, WGL, WRE, XOM
by: The Part-time Investor
Summary

The Dogs of the Dow attempts to buy undervalued stocks at the low end of a cycle.

But perhaps these "blue chip" stocks do not really have the quality we are looking for.

By Using the Dividend Champions as our universe of stock to choose from I believe we can do better than the Dogs of the Dow.

Introduction

I believe in keeping things simple. That is why I have developed my Keep It Simple, Stupid (KISS) portfolio, which I have managed for over 6 years, with updates posted on Seeking Alpha every quarter. It’s also why I have always been intrigued by the Dogs of the Dow ("DOD").

“Dogs of the Dow is an investment strategy that uses the 10-highest dividend–yielding blue-chip stocks in the Dow Jones Industrial Average ("DJIA") each year. “ (Investopedia Dogs of the Dow)

The theory behind this investing method is that stocks with a high yield might be undervalued and therefore might be worth buying.

“Dogs of the Dow relies on the premise that blue-chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company. In contrast, the stock price does fluctuate throughout the business cycle. This should mean that companies with a high dividend relative to stock price are near the bottom of their business cycle, so their stock price likely would increase faster than companies with low dividend yields. In this scenario, an investor reinvesting in high-dividend-yielding companies annually should outperform the overall market.” (Investopedia)

I’m pretty sure most people are familiar with the DOD strategy. The method and the reasoning behind it, as described above, is very straight forward, and very simple. And the results for this method, according to DogsoftheDow.com, have consistently beaten the market over the long term. As reported by DogsoftheDow the Dogs have had an average annual return of 8.6% since the year 2000 while the DJIA has returned 6.9% and the S&P has returned 6.2%. As I have described many times in my portfolio updates and my PAAY articles I believe that a stock’s yield can be a significant Indicator which can help identify undervalued stocks, and therefore which stocks to invest in. The Dogs strategy, and the results it has produced, lend some credence to this contention.

But I am a dividend growth investor, and I only invest in stocks that raise their dividend year after year. The DOD does not follow this philosophy. Not all Dow stocks are dividend growth stocks. A Dow stock could freeze its dividend and still stay in the index. It could even cut its dividend and remain in the Dow. But I won’t buy stocks that have frozen or cut their dividends. I only buy dividend growth stocks. So I wondered if the philosophy of the Dogs could be modified to meet my standards. I thought that maybe using the Dividend Champions list, rather than the Dow 30, as my list of possible stocks to choose from, could lead to a successful investing method. To study this I did a back test to see how this could have been used and how it would have worked.

Method

First let me define the Dividend Champions. These are the stocks which have raised their dividend every year, year after year with no interruption, for at least the past 25 years. The list of Dividend Champions was created by David Fish, and is presently being maintained by Justin Law. It can be found here.

With anywhere from about 120-140 stocks on the Dividend Champions list any particular year I thought that using only the top ten stocks, as the DOD method does, would be too limiting. I felt more diversification was needed. Instead I decided to use the 20 highest yielding stocks on the Champions list, rather than just the top 10 like the DOD does. I called this portfolio the Dogs of the Champions ("DOC")

For the back test I would “buy” the top 20 yielding stocks on Dec 31st, hold them for a year, and sell them on Dec 31st of the following year. I would then rebalance the portfolio and again buy equal dollar values of the top 20 stocks for the next year. I started the back test in 2008, which is as far back as the Dividend Champions list goes. The back test “bought” on 1/15/08 (in the first year that David created the "CCC" list the stocks were priced on 1/15/08, rather than 12/31 of the previous year as all of the following year’s lists do).

So here was the outline of the plan:

  1. Buy the 20 stocks in the Dividend Champions list with the highest yield on the last trading day of the year and hold for one year. (for 2008 the purchase would be made on Jan. 15 rather than Dec 31 of the previous year)
  2. After holding for one year sell all the stocks on the last trading day of the year
  3. Rebalance and buy the next year’s top 20 stocks, putting equal amounts in to each stock.
  4. Repeat this for every year from 2008-2018.
  5. Calculate the total return and the average annual return.
  6. Compare the final total results of the Dogs of the Champions to the return of the S&P over the same time period and to the DOD method.

When I started the back test and I looked at the top 20 stocks and immediately noticed something. The vast majority of the top 20 stocks on the "CCC" list in 2008 were banking stocks. 16 out of the 20, I believe. I would never put 80% of my funds into one Industry, so I quickly had to modify my plan. In order to make sure the DOC portfolio had enough diversity I decided that the portfolio would buy no more than 3 stocks be in any one particular industry. For example I would only buy 3 stocks in the banking sector, and move on to the next highest yielding stocks to fill out the portfolio.

So the modified outline of the plan was:

  1. Buy the 20 stocks in the Dividend Champions list with the highest yield on the last trading day of the year and hold for one year. (for 2008 the purchase would be made on Jan. 15 rather than Dec 31 of the previous year)
  2. For diversification purposes only 3 of the 20 could be in any one particular industry.
  3. After holding for one year sell all the stocks on the last trading day of the year and calculate the return.
  4. The return for each stock would be based on the assumption that dividends were reinvested back into the stock that paid them.
  5. Rebalance and buy the next year’s top 20 stocks, putting equal amounts in to each stock.
  6. Repeat this for every year from 2008-2018.
  7. Compare the final total results of the Dogs of the Champions to the return of the S&P over the same time period, the DJIA, and to the DOD method.

RESULTS

All the stocks “bought” during this back test, the prices bought and sold, and the returns for each stock and for the total portfolio for each year, are shown below.

The ending prices, dividends paid and return were taken from The Dividend Channel website: (DRIP Returns Calculator | Dividend Channel)

2008

1/15/08

12/31/08

Starting

Ending

Industry

Yield

Price

Price

Dividends

Return

Shares

Value

Value

Progressive Corp. (PGR)

Insurance

10.71

18.67

14.81

0.14

-19.93%

535.62

10000.00

8,007.50

La-Z-Boy Inc. (LZB)

Furniture

7.72

6.22

2.17

0.14

-62.86%

1607.72

10000.00

3,713.83

Fifth Third Bancorp (FITB)

Banking

7.68

22.91

8.26

0.75

-60.67%

436.49

10000.00

3,932.78

Regions Financial Corp. (RF)

Banking

7.47

20.34

7.96

0.96

-56.15%

491.64

10000.00

4,385.45

KeyCorp (KEY)

Banking

6.82

21.99

8.52

1.00

-56.71%

454.75

10000.00

4,329.24

UDR Inc. (UDR)

REIT

6.70

19.70

13.79

2.28

-18.43%

507.61

10000.00

8,157.36

Leggett & Platt Inc. (LEG)

Furniture/Bldg. Prod.

6.31

15.85

15.19

1.00

2.15%

630.91

10000.00

10,214.51

Washington REIT (WRE)

REIT

6.15

27.50

28.30

1.72

9.16%

363.64

10000.00

10,916.36

Pfizer Inc. (PFE)

Drugs

5.43

23.59

17.71

1.28

-19.50%

423.91

10000.00

8,050.02

Integrys Energy Group (TEG)

Utility-Electric/Gas

5.16

51.19

42.98

2.68

-10.80%

195.35

10000.00

8,919.71

Consolidated Edison (ED)

Utility-Electric

4.95

46.89

38.93

2.34

-11.99%

213.27

10000.00

8,801.45

Masco Corp. (MAS)

Building Products

4.83

16.74

9.78

0.61

-37.93%

597.37

10000.00

6,206.69

Gannett Company (GCI)

Publishing

4.77

33.57

8.00

1.60

-71.40%

297.89

10000.00

2,859.70

Old Republic Int'l (ORI)

Insurance

4.55

14.08

11.92

0.67

-10.58%

710.23

10000.00

8,941.76

Vectren Corp. (VVC)

Utility-Electric/Gas

4.53

28.70

25.01

1.31

-8.29%

348.43

10000.00

9,170.73

AT&T Inc. (T)

Telecommunications

4.25

37.63

28.50

1.20

-21.07%

265.75

10000.00

7,892.64

Pitney Bowes Inc. (PBI)

Business Equipment

3.95

35.43

25.48

1.40

-24.13%

282.25

10000.00

7,586.79

Altria Group Inc. (MO)

Tobacco

3.82

78.46

15.06

2.87

127.45

10000.00

1,919.40

Phillip Morris (PM)

43.51

1.54

127.45

5,545.35

Spin Off

Diebold Inc. (DBD)

Business Equipment

3.80

24.71

28.09

1.00

17.73%

404.69

10000.00

11,772.56

Universal Corp. (UVV)

Tobacco

3.69

48.75

29.87

1.35

-35.96%

205.13

10000.00

6,404.10

200000.00

147,727.93

-26.14%

2009

12/31/08

12/31/09

Starting

Ending

Industry

Yield

Price

Price

Dividends

Return

Shares

Value

Value

Gannett Company (GCI)

Publishing

20.00

8.00

14.85

0.16

92.16

912.54

7300.29

14,028.26

CenturyTel Inc. (CTL)

Telecommunications

10.25

27.33

36.21

2.80

45.11

267.12

7300.29

10,593.47

UDR Inc. (UDR)

REIT

9.57

13.79

16.44

0.67

27.53

529.39

7300.29

9,310.07

Marshall & Ilsley Corp. (MI)

Banking

9.38

13.64

5.45

0.04

-59.77

535.21

7300.29

2,936.91

Masco Corp. (MAS)

Building Products

8.45

11.13

12.14

0.40

30.00

655.91

7300.29

9,490.39

General Electric Co. (GE)

Conglomerate

7.65

16.20

14.55

0.59

-1.71

450.64

7300.29

7,175.46

F.N.B. Corp. (FNB)

Banking

7.27

13.20

6.79

0.48

-44.71

553.05

7300.29

4,036.34

Pfizer Inc. (PFE)

Drugs

7.23

17.71

18.19

0.80

8.26

412.21

7300.29

7,903.30

BB&T Corp. (BBT)

Banking

6.85

27.46

25.37

1.24

-1.90

265.85

7300.29

7,161.59

Leggett & Platt Inc. (LEG)

Furniture/Bldg. Prod.

6.58

15.19

20.4

1.02

43.25

480.60

7300.29

10,457.68

Bowl America Class A (BWL.A)

Recreation

6.48

9.26

13.05

0.61

48.84

788.38

7300.29

10,836.57

Integrys Energy Group (TEG)

Utility-Electric/Gas

6.24

42.98

41.99

2.72

5.84

169.85

7300.29

7,726.64

Universal Corp. (UVV)

Tobacco

6.16

29.87

45.61

1.84

60.98

244.40

7300.29

11,752.02

Washington REIT (WRE)

REIT

6.11

28.30

27.55

1.73

4.90

257.96

7300.29

7,658.01

RPM International Inc. (RPM)

Chemical-Specialty

6.02

13.29

20.33

0.81

61.68

549.31

7300.29

11,803.13

Consolidated Edison (ED)

Utility-Electric

6.01

38.93

45.43

2.36

23.89

187.52

7300.29

9,044.34

AT&T Inc. (T)

Telecommunications

5.75

28.50

28.03

1.64

4.82

256.15

7300.29

7,652.17

Old Republic Int'l (ORI)

Insurance

5.70

11.92

10.04

0.68

-10.01

612.44

7300.29

6,569.54

Washington Federal Inc. (WFSL)

Savings & Loan

5.61

14.96

19.34

0.20

31.03

487.99

7300.29

9,565.58

Pitney Bowes Inc. (PBI)

Business Equipment

5.49

25.48

22.76

1.44

-4.77

286.51

7300.29

6,952.08

146005.75

172,653.56

18.25%

2010

12/31/09

12/31/10

Starting

Ending

Industry

Yield

Price

Price

Dividends

Return

Shares

Value

Value

CenturyLink Inc. (CTL)

Telecommunications

7.73

36.21

46.17

2.90

38.01

238.41

8632.68

13,801.00

Old Republic Int'l (ORI)

Insurance

6.77

10.04

13.63

0.69

43.27

859.83

8632.68

14,327.00

Integrys Energy Group (TEG)

Utility-Electric/Gas

6.48

41.99

48.51

2.72

22.39

205.59

8632.68

12,239.00

Pitney Bowes Inc. (PBI)

Business Equipment

6.33

22.76

24.18

1.46

13.38

379.29

8632.68

11,338.00

Washington REIT (WRE)

REIT

6.28

27.55

30.99

1.73

19.24

313.35

8632.68

11,924.00

Cincinnati Financial (CINF)

Insurance

6.02

26.24

31.69

1.59

27.49

328.99

8632.68

12,749.00

United Bankshares Inc. (UBSI)

Banking

6.01

19.97

29.20

1.20

53.16

432.28

8632.68

15,316.00

AT&T Inc. (T)

Telecommunications

5.99

28.03

29.38

1.68

11.63

307.98

8632.68

11,163.00

Vectren Corp. (VVC)

Utility-Electric/Gas

5.51

24.68

25.38

1.36

8.67

349.78

8632.68

10,867.00

Eli Lilly & Company (LLY)

Drugs

5.49

35.71

35.04

1.96

3.71

241.74

8632.68

10,371.00

Black Hills Corp. (BKH)

Utility-Electric

5.33

26.63

30.00

1.44

18.32

324.17

8632.68

11,832.00

Leggett & Platt Inc. (LEG)

Furniture/Bldg. Prod.

5.10

20.40

22.76

1.06

17.06

423.17

8632.68

11,706.00

Community Trust Banc. (CTBI)

Banking

4.91

22.23

26.33

1.10

23.78

388.33

8632.68

12,378.00

Bowl America Class A (BWL.A)

Recreation

4.75

13.05

12.54

0.46

-0.49

661.51

8632.68

9,863.00

Genuine Parts Co. (GPC)

Auto Parts

4.21

37.96

51.34

1.64

40.51

227.42

8632.68

14,051.00

Universal Corp. (UVV)

Tobacco

4.12

45.61

40.70

1.88

-6.99

189.27

8632.68

9,301.00

RPM International Inc. (RPM)

Chemical-Specialty

4.03

20.33

22.10

0.82

13.21

424.63

8632.68

11,321.00

Federal Realty Inv. Trust (FRT)

REIT

3.90

67.72

77.93

2.66

19.17

127.48

8632.68

11,917.00

Bank of Hawaii Corp. (BOH)

Banking

3.82

47.06

47.21

1.80

4.39

183.44

8632.68

10,439.00

Kimberly-Clark Corp. (KMB)

Personal Products

3.77

61.08

60.44

2.53

3.22

141.33

8632.68

10,322.00

172653.56

237,225.00

37.40%

2011

12/31/10

12/31/11

Starting

Ending

Industry

Yield

Price

Price

Dividends

Return

Shares

Value

Value

Investors Real Estate Trust (IRET)

REIT

7.65

8.97

7.30

0.60

-12.54

1322.32

11861.25

10,373.85

CenturyLink Inc. (CTL)

Telecommunications

6.28

46.17

37.20

2.90

-13.13

256.90

11861.25

10,303.87

Altria Group Inc. (MO)

Tobacco

6.17

24.62

29.65

1.58

27.66

481.77

11861.25

15,142.07

Pitney Bowes Inc. (PBI)

Business Equipment

6.04

24.18

18.54

1.48

-17.85

490.54

11861.25

9,744.02

AT&T Inc. (T)

Telecommunications

5.85

29.38

30.24

1.72

9.01

403.72

11861.25

12,929.95

Washington REIT (WRE)

REIT

5.60

30.99

27.35

1.74

-6.33

382.74

11861.25

11,110.43

Vectren Corp. (VVC)

Utility-Electric/Gas

5.44

25.38

30.23

1.38

25.35

467.35

11861.25

14,868.08

Bowl America Class A (BWL.A)

Recreation

5.10

12.54

12.86

0.64

7.78

945.87

11861.25

12,784.06

Old Republic Int'l (ORI)

Insurance

5.06

13.63

9.27

0.70

-27.13

870.23

11861.25

8,643.29

Cincinnati Financial (CINF)

Insurance

5.05

31.69

30.46

1.61

1.52

374.29

11861.25

12,041.54

Consolidated Edison (ED)

Utility-Electric

4.80

49.57

62.03

2.40

30.82

239.28

11861.25

15,516.89

Black Hills Corp. (BKH)

Utility-Electric

4.80

30.00

33.58

1.46

17.33

395.38

11861.25

13,916.80

Leggett & Platt Inc. (LEG)

Furniture/Bldg. Prod.

4.75

22.76

23.04

1.10

6.34

521.14

11861.25

12,613.25

Universal Corp. (UVV)

Tobacco

4.72

40.70

45.96

1.92

18.44

291.43

11861.25

14,048.46

Community Trust Banc. (CTBI)

Banking

4.21

26.33

26.75

1.12

6.40

450.48

11861.25

12,620.37

Kimberly-Clark Corp. (KMB)

Personal Products

4.19

63.04

70.53

2.68

21.70

188.15

11861.25

14,428.02

United Bankshares Inc. (UBSI)

Banking

4.11

29.20

28.27

1.21

1.62

406.21

11861.25

12,053.40

RPM International Inc. (RPM)

Chemical-Specialty

3.80

22.10

24.55

0.84

15.34

536.71

11861.25

13,680.77

Abbott Laboratories (ABT)

Drugs

3.67

47.91

26.98

0.90

21.76

247.57

11861.25

14,442.26

Sysco Corp. (SYY)

Food-Wholesale

3.54

29.40

29.33

1.04

3.48

403.44

11861.25

12,274.02

237225.00

253,535.40

6.88%

2012

12/31/11

12/31/12

Starting

Ending

Industry

Yield

Price

Price

Dividends

Return

Shares

Value

Value

Old Republic Int'l (ORI)

Insurance

8.52

9.27

10.65

0.71

23.36

1367.50

12676.77

15,638.20

Pitney Bowes Inc. (PBI)

Business Equipment

7.94

18.54

10.64

1.50

-36.23

683.75

12676.77

8,082.71

Washington REIT (WRE)

REIT-Office/Industrial

6.38

27.35

26.15

1.47

0.75

463.50

12676.77

12,770.58

AT&T Inc. (T)

Telecommunications

6.07

30.24

33.71

1.76

17.51

419.21

12676.77

14,896.47

Altria Group Inc. (MO)

Tobacco

5.72

29.65

31.44

1.70

11.77

427.55

12676.77

14,167.56

Cincinnati Financial (CINF)

Insurance

5.43

30.46

39.16

1.62

34.18

416.18

12676.77

17,008.42

Mercury General Corp. (MCY)

Insurance

5.42

45.62

39.69

2.44

-7.83

277.88

12676.77

11,682.91

Bowl America Class A (BWL.A)

Recreation

5.24

12.86

12.50

1.31

7.43

985.75

12676.77

13,618.65

Leggett & Platt Inc. (LEG)

Furniture/Bldg. Prod.

5.00

23.04

27.22

1.14

23.99

550.21

12676.77

15,717.93

HCP Inc. (HCP)

REIT-Health Care

4.97

37.73

41.13

1.82

14.19

335.99

12676.77

14,475.60

Vectren Corp. (VVC)

Utility-Electric/Gas

4.81

30.23

29.40

1.40

2.08

419.34

12676.77

12,940.45

United Bankshares Inc. (UBSI)

Banking

4.64

28.27

24.34

1.24

-9.65

448.42

12676.77

11,453.46

Black Hills Corp. (BKH)

Utility-Electric

4.46

33.58

36.34

1.11

11.94

377.51

12676.77

14,189.11

Community Trust Banc. (CTBI)

Banking

4.40

26.75

29.80

1.14

15.76

473.90

12676.77

14,674.63

Universal Corp. (UVV)

Tobacco

4.14

45.96

49.91

1.96

13.14

275.82

12676.77

14,341.23

Eagle Financial Services (OTCQX:EFSI)

Banking

4.09

16.81

22.00

0.73

35.55

754.12

12676.77

17,183.93

Consolidated Edison (ED)

Utility-Electric

4.04

62.03

55.54

2.42

-6.72

204.37

12676.77

11,823.62

Kimberly-Clark Corp. (KMB)

Personal Products

3.92

70.53

80.95

2.84

19.11

179.74

12676.77

15,099.30

Sysco Corp. (SYY)

Food-Wholesale

3.78

29.33

29.45

1.08

11.89

432.21

12676.77

14,184.04

Diebold Inc. (DBD)

Business Equipment

3.71

30.07

30.61

1.14

5.26

421.58

12676.77

13,343.49

253535.40

277,292.31

9.37%

2013

12/31/12

12/31/13

Starting

Ending

Industry

Yield

Price

Price

Dividends

Return

Shares

Value

Value

Pitney Bowes Inc. (PBI)

Business Equipment

14.10

10.64

23.3

0.94

132.02

1303.07

13864.62

32,168.68

Old Republic Int'l (ORI)

Insurance

6.67

10.65

17.27

0.72

70.73

1301.84

13864.62

23,671.06

Mercury General Corp. (MCY)

Insurance

6.17

39.69

49.71

2.45

32.57

349.32

13864.62

18,380.32

Altria Group Inc. (MO)

Tobacco

5.60

31.44

38.39

1.84

28.56

440.99

13864.62

17,824.35

AT&T Inc. (T)

Telecommunications

5.34

33.71

35.16

1.8

9.76

411.29

13864.62

15,217.80

Bowl America Class A (BWL.A)

Recreation

5.28

12.5

14.32

0.49

18.89

1109.17

13864.62

16,483.64

United Bankshares Inc. (UBSI)

Banking

5.09

24.34

31.45

1.25

35.13

569.62

13864.62

18,735.25

Universal Health Realty Trust (UHT)

REIT-Health Care

4.90

50.61

40.06

2.5

-16.39

273.95

13864.62

11,592.20

Vectren Corp. (VVC)

Utility-Electric/Gas

4.83

29.4

35.5

1.42

25.82

471.59

13864.62

17,444.46

HCP Inc. (HCP)

REIT-Health Care

4.43

45.16

33.08

1.91

-15.78

307.01

13864.62

11,676.78

Consolidated Edison (ED)

Utility-Electric

4.36

55.54

55.28

2.46

3.79

249.63

13864.62

14,390.08

Leggett & Platt Inc. (LEG)

Furniture/Bldg. Prod.

4.26

27.22

30.94

1.18

18.09

509.35

13864.62

16,372.72

Cincinnati Financial (CINF)

Insurance

4.16

39.16

52.37

1.65

38.44

354.05

13864.62

19,194.17

Northwest Natural Gas (NWN)

Utility-Gas

4.12

44.2

42.82

1.82

0.9

313.68

13864.62

13,989.40

Sonoco Products Co. (SON)

Packaging

4.04

29.73

41.72

1.23

45.17

466.35

13864.62

20,127.26

Universal Corp. (UVV)

Tobacco

4.01

49.91

54.6

2

13.53

277.79

13864.62

15,740.50

Community Trust Banc. (CTBI)

Banking

3.84

32.78

41.05

1.15

42.5

422.96

13864.62

19,757.08

Tompkins Financial Corp. (TMP)

Banking

3.83

39.64

51.39

1.54

34.24

349.76

13864.62

18,611.86

Diebold Inc. (DBD)

Business Equipment

3.72

30.61

33.01

1.15

12.03

452.94

13864.62

15,532.53

Sysco Corp. (SYY)

Food-Wholesale

3.54

31.66

36.1

1.41

18.89

437.92

13864.62

16,483.64

277292.31

353,393.79

27.44%

2014

12/31/13

12/31/14

Starting

Ending

Industry

Yield

Price

Price

Dividends

Return

Shares

Value

Value

Universal Health Realty Trust (UHT)

REIT-Health Care

6.24

40.06

48.12

2.52

27.17

441.08

17669.69

22,470.54

HCP Inc. (HCP)

REIT-Health Care

5.78

33.08

40.10

1.99

27.80

534.15

17669.69

22,581.86

AT&T Inc. (T)

Telecommunications

5.23

35.16

33.59

1.84

0.65

502.55

17669.69

17,784.54

Altria Group Inc. (MO)

Tobacco

5.00

38.39

49.27

2.00

34.52

460.27

17669.69

23,769.27

Mercury General Corp. (MCY)

Insurance

4.95

49.71

56.67

2.46

19.87

355.46

17669.69

21,180.66

Bowl America Class A (BWL.A)

Recreation

4.61

14.32

14.32

0.67

4.71

1233.92

17669.69

18,501.93

Consolidated Edison (ED)

Utility-Electric

4.45

55.28

66.01

1.89

23.38

319.64

17669.69

21,800.86

Northwest Natural Gas (NWN)

Utility-Gas

4.30

42.82

49.90

1.85

21.49

412.65

17669.69

21,466.91

WGL Holdings Inc. (WGL)

Utility-Gas

4.19

40.06

54.62

1.74

42.25

441.08

17669.69

25,135.13

Old Republic International (ORI)

Insurance

4.17

17.27

14.63

0.73

-11.23

1023.14

17669.69

15,685.38

United Bankshares Inc. (UBSI)

Banking

4.07

31.45

37.45

1.28

23.86

561.83

17669.69

21,885.68

Leggett & Platt Inc. (LEG)

Furniture/Bldg. Prod.

3.88

30.94

42.61

1.22

42.53

571.10

17669.69

25,184.61

Universal Corp. (UVV)

Tobacco

3.74

54.60

43.98

2.04

-16.14

323.62

17669.69

14,817.80

Diebold Inc. (DBD)

Business Equipment

3.48

33.01

34.64

1.15

8.29

535.28

17669.69

19,134.51

Eagle Financial Services (OTCQX:EFSI)

Banking

3.38

22.50

23.30

0.77

7.07

785.32

17669.69

18,918.94

McDonald's Corp. (MCD)

Restaurants

3.34

97.03

93.70

3.28

-0.11

182.11

17669.69

17,650.25

Sysco Corp. (SYY)

Food-Wholesale

3.21

36.10

39.69

1.46

14.33

489.47

17669.69

20,201.76

Cincinnati Financial (CINF)

Insurance

3.21

52.37

51.83

1.76

2.62

337.40

17669.69

18,132.64

Chevron Corp. (CVX)

Oil & Gas

3.20

124.91

112.18

4.21

-6.98

141.46

17669.69

16,436.35

Tompkins Financial Corp. (TMP)

Banking

3.11

51.39

55.30

1.62

11.35

343.84

17669.69

19,675.20

353393.79

402,414.81

13.87%

2015

12/31/14

12/31/15

Starting

Ending

Industry

Yield

Price

Price

Dividends

Return

Shares

Value

Value

AT&T Inc. (T)

Telecommunications

5.60

33.59

34.41

1.88

8.33

599.01

20120.74

21,796.80

Universal Health Realty Trust (UHT)

REIT-Health Care

5.28

48.12

50.01

2.56

9.50

418.14

20120.74

22,032.21

Old Republic International (ORI)

Insurance

4.99

14.63

18.63

0.74

33.36

1375.31

20120.74

26,833.02

HCP Inc. (HCP)

REIT-Health Care

4.95

40.10

34.83

2.06

-8.03

501.76

20120.74

18,505.05

Bowl America Class A (BWL.A)

Recreation

4.75

14.32

14.24

0.68

4.12

1405.08

20120.74

20,949.72

Universal Corp. (UVV)

Tobacco

4.73

43.98

56.08

2.08

33.15

457.50

20120.74

26,790.77

Mercury General Corp. (MCY)

Insurance

4.36

56.67

46.57

2.47

-13.82

355.05

20120.74

17,340.05

National Retail Properties (NNN)

REIT-Retail

4.27

39.37

40.05

1.71

6.20

511.07

20120.74

21,368.23

Altria Group Inc. (MO)

Tobacco

4.22

49.27

58.21

2.17

23.10

408.38

20120.74

24,768.63

Helmerich & Payne Inc. (HP)

Oil & Gas

4.08

67.42

53.55

2.75

-17.15

298.44

20120.74

16,670.03

Consolidated Edison (ED)

Utility-Electric

3.82

66.01

64.27

2.60

1.41

304.81

20120.74

20,404.44

Chevron Corp. (CVX)

Oil & Gas

3.82

112.18

89.96

4.28

-16.21

179.36

20120.74

16,859.17

Northwest Natural Gas (NWN)

Utility-Gas

3.71

49.90

50.61

1.86

5.49

403.22

20120.74

21,225.37

McDonald's Corp. (MCD)

Restaurants

3.63

93.70

118.14

3.44

30.42

214.74

20120.74

26,241.47

Eagle Financial Services (OTCQX:EFSI)

Banking

3.43

23.30

23.00

0.80

2.08

863.55

20120.74

20,539.25

United Bankshares Inc. (UBSI)

Banking

3.42

37.45

36.99

1.29

2.19

537.27

20120.74

20,561.38

Cincinnati Financial (CINF)

Insurance

3.40

51.83

59.17

2.30

19.00

388.21

20120.74

23,943.68

Middlesex Water Co. (MSEX)

Utility-Water

3.34

23.06

26.54

0.78

19.04

872.54

20120.74

23,951.73

Community Trust Banc. (CTBI)

Banking

3.28

36.61

34.96

1.22

-1.03

549.60

20120.74

19,913.50

Emerson Electric (EMR)

Industrial Equipment

3.05

61.73

47.83

1.88

-19.73

325.95

20120.74

16,150.92

402414.81

426,845.42

6.07%

2016

12/31/15

12/31/16

Starting

Ending

Industry

Yield

Price

Price

Dividends

Return

Shares

Value

Value

HCP Inc. (HCP)

REIT-Health Care

5.91

34.83

29.73

1.94

-9.41

612.76

21342.27

19,333.96

AT&T Inc. (T)

Telecommunications

5.58

34.41

42.53

1.92

29.88

620.23

21342.27

27,719.34

Mercury General Corp. (MCY)

Insurance

5.33

46.57

60.21

2.48

35.27

458.28

21342.27

28,869.69

Universal Health Realty Trust (UHT)

REIT-Health Care

5.16

50.01

65.59

2.60

37.21

426.76

21342.27

29,283.73

Helmerich & Payne Inc. (HP)

Oil&Gas

5.14

53.55

77.40

2.78

51.73

398.55

21342.27

32,382.63

Chevron Corp. (CVX)

Oil&Gas

4.76

89.96

117.70

4.29

36.64

237.24

21342.27

29,162.08

Bowl America Class A (BWL.A)

Recreation

4.73

14.24

16.48

0.68

21.26

1498.75

21342.27

25,879.64

National Retail Properties (NNN)

REIT-Retail

4.34

40.05

44.20

1.78

14.75

532.89

21342.27

24,490.26

Questar Corp. (STR)

Utility-Gas

4.31

19.48

25.06

0.66

32.08

1095.60

21342.27

28,188.87

MDU Resources (MDU)

Utility-Gas

4.09

18.32

28.77

0.76

62.26

1164.97

21342.27

34,629.97

Consolidated Edison (ED)

Utility-Electric

4.05

64.27

73.68

2.68

18.94

332.07

21342.27

25,384.50

Emerson Electric (EMR)

Industrial Equipment

3.97

47.83

55.75

1.99

21.00

446.21

21342.27

25,824.15

Old Republic International (ORI)

Insurance

3.97

18.63

19.00

0.75

6.19

1145.59

21342.27

22,663.36

Altria Group Inc. (MO)

Tobacco

3.88

58.21

67.62

2.35

20.46

366.64

21342.27

25,708.90

Universal Corp. (UVV)

Tobacco

3.78

56.08

63.75

2.12

18.08

380.57

21342.27

25,200.95

ExxonMobil Corp. (XOM)

Oil&Gas

3.75

77.95

90.26

2.98

19.90

273.79

21342.27

25,589.38

Nucor Corp. (NUE)

Steel & Iron

3.72

40.30

59.52

1.50

52.11

529.58

21342.27

32,463.73

United Bankshares Inc. (UBSI)

Banking

3.57

36.99

46.25

1.32

29.21

576.97

21342.27

27,576.35

Community Trust Banc. (CTBI)

Banking

3.55

34.96

49.60

1.26

46.72

610.48

21342.27

31,313.38

Brady Corp. (BRC)

Business Services

3.52

22.98

37.55

0.81

68.22

928.73

21342.27

35,901.97

426845.42

557,566.83

30.63%

2017

12/31/16

12/31/17

Starting

Ending

Industry

Yield

Price

Price

Dividends

Return

Shares

Value

Value

AT&T Inc. (T)

Telecommunications

4.61

42.53

38.88

1.96

-3.94

655.50

27878.34

26,779.93

Mercury General Corp. (MCY)

Insurance

4.14

60.21

53.44

2.49

-7.22

463.02

27878.34

25,865.53

National Retail Properties (NNN)

REIT-Retail

4.12

44.20

43.13

1.86

2.00

630.73

27878.34

28,435.91

Universal Health Realty Trust (UHT)

REIT-Health Care

3.99

65.59

75.11

2.64

18.80

425.04

27878.34

33,119.47

Old Republic International (ORI)

Insurance

3.95

19.00

21.38

0.76

16.85

1467.28

27878.34

32,575.84

Chevron Corp. (CVX)

Oil&Gas

3.67

117.70

125.19

4.32

10.62

236.86

27878.34

30,839.02

Consolidated Edison (ED)

Utility-Electric

3.64

73.68

84.95

2.76

19.27

378.37

27878.34

33,250.50

Helmerich & Payne Inc. (HP)

Oil&Gas

3.62

77.40

64.64

2.80

-12.18

360.19

27878.34

24,482.76

Altria Group Inc. (MO)

Tobacco

3.61

67.62

71.41

2.54

9.45

412.28

27878.34

30,512.84

Emerson Electric (EMR)

Industrial Equipment

3.44

55.75

69.69

1.92

29.04

500.06

27878.34

35,974.21

Eagle Financial Services (OTCQX:EFSI)

Banking

3.42

25.75

32.00

0.88

28.08

1082.65

27878.34

35,706.58

Universal Corp. (UVV)

Tobacco

3.39

63.75

52.50

2.16

-14.78

437.31

27878.34

23,757.92

Coca-Cola Company (KO)

Beverages-Non-alcoholic

3.38

41.46

45.88

1.48

14.37

672.42

27878.34

31,884.46

ExxonMobil Corp. (XOM)

Oil&Gas

3.32

90.26

83.64

3.06

-3.80

308.87

27878.34

26,818.96

Target Corp. (TGT)

Retail-Discount

3.32

72.23

65.50

2.44

-5.85

385.97

27878.34

26,247.46

Kimberly-Clark Corp. (KMB)

Personal Products

3.22

114.12

120.66

3.88

9.05

244.29

27878.34

30,401.33

Vectren Corp. (VVC)

Utility-Electric/Gas

3.22

52.15

65.02

1.71

28.25

534.58

27878.34

35,753.97

Procter & Gamble Co. (PG)

Consumer Products

3.19

84.08

91.88

2.74

12.70

331.57

27878.34

31,418.89

VF Corp. (VFC)

Apparel

3.15

53.35

74.00

1.72

42.75

522.56

27878.34

39,796.33

Northwest Natural Gas (NWN)

Utility-Gas

3.14

59.80

59.65

1.88

2.83

466.19

27878.34

28,667.30

557566.83

612,289.22

9.81%

2018

12/31/17

12/31/18

Starting

Ending

Industry

Yield

Price

Price

Dividends

Return

Shares

Value

Value

AT&T Inc. (T)

Telecommunications

5.14

38.88

28.54

2.00

-22.24

787.41

30614.46

23,805.80

Mercury General Corp. (MCY)

Insurance

4.68

53.44

51.71

2.50

1.68

572.88

30614.46

31,128.78

Realty Income Corp. (O)

REIT-Retail Stores

4.47

57.02

63.04

2.85

16.37

536.91

30614.46

35,626.05

National Retail Properties (NNN)

REIT-Retail

4.41

43.13

48.51

1.95

17.78

709.82

30614.46

36,057.71

Helmerich & Payne Inc. (HP)

Oil&Gas

4.33

64.64

47.94

2.82

-22.55

473.61

30614.46

23,710.90

Universal Corp. (UVV)

Tobacco

4.19

52.50

54.15

2.60

7.76

583.13

30614.46

32,990.14

United Bankshares Inc. (UBSI)

Banking

3.91

34.75

31.11

1.36

-7.05

880.99

30614.46

28,456.14

Target Corp. (TGT)

Retail-Discount

3.80

65.25

66.09

2.52

4.78

469.19

30614.46

32,077.83

Altria Group Inc. (MO)

Tobacco

3.70

71.41

49.39

3.00

-27.09

428.71

30614.46

22,321.00

People's United Financial (PBCT)

Banking

3.69

18.70

14.43

0.70

-19.77

1637.14

30614.46

24,561.98

ExxonMobil Corp. (XOM)

Oil&Gas

3.68

83.64

68.19

3.23

-15.10

366.03

30614.46

25,991.68

Old Republic International (ORI)

Insurance

3.55

21.38

20.57

1.78

4.79

1431.92

30614.46

32,080.89

Universal Health Realty Trust (UHT)

REIT-Health Care

3.54

75.11

61.37

2.68

-14.90

407.60

30614.46

26,052.91

Chevron Corp. (CVX)

Oil&Gas

3.45

125.19

108.79

4.48

-9.78

244.54

30614.46

27,620.37

Consolidated Edison (ED)

Utility-Electric

3.25

84.95

76.46

2.86

-6.62

360.38

30614.46

28,587.78

Coca-Cola Company (KO)

Beverages-Non-alcoholic

3.23

45.88

47.35

1.56

6.79

667.27

30614.46

32,693.18

Kimberly-Clark Corp. (KMB)

Personal Products

3.22

120.66

113.94

4.00

-2.10

253.73

30614.46

29,971.56

Archer Daniels Midland (ADM)

Agriculture

3.19

40.08

40.97

1.34

5.26

763.83

30614.46

32,224.78

Northwest Natural Gas (NWN)

Utility-Gas

3.17

59.65

60.46

1.89

4.48

513.23

30614.46

31,985.99

Black Hills Corp. (BKH)

Utility-Electric

3.16

60.11

62.78

1.93

1.93

509.31

30614.46

31,205.32

612289.22

589,150.81

-3.78%

The results of the DOC as compared to the S&P, the DJIA, and the DOD are as follows.

Year

DOC

DOD

S&P

DJIA

2008

-26.14%

-38.80%

-37.00%

-31.93%

2009

18.25%

16.90%

26.46%

22.68%

2010

37.40%

20.50%

15.06%

14.06%

2011

6.88%

16.30%

2.11%

8.38%

2012

9.37%

9.90%

16.00%

10.24%

2013

27.44%

34.90%

32.39%

29.65%

2014

13.87%

10.80%

13.69%

10.04%

2015

6.07%

2.60%

1.38%

0.21%

2016

30.36%

20.10%

11.96%

16.50%

2017

9.81%

19.40%

21.83%

22.50%

2018

-3.78%

0.02%

-4.38%

-3.74%

Total Value

$594,813.87

$484,723.01

$432,185.28

$447,016.21

Ave Return

10.45%

8.41%

7.28%

7.61%

Data for DOD and DJIA returns from Dogs of the Dow 2019 - MoneyInvestExpert.com , Data for S&P from S&P 500 Total Returns by Year since 1926

Discussion

First let me point out that I have looked at a few different web pages to find the past annual results of DOD, S&P and DJIA, and the reported results I have found do not necessarily match each other. For example DogsoftheDow.com says the DOD returns for 2016, 2017 and 2018 are 20.8%, 23.7% and 0.0%. I don’t know why there is such a discrepancy. Perhaps it’s due to whether or not dividend reinvestment is used? Perhaps the dates they use to buy and sell might be different? Whatever it is the differences can lead to significantly different total and average returns. I have chosen to go with Dogs of the Dow 2019 - MoneyInvestExpert.com and S&P 500 Total Returns by Year since 1926 because they seemed to closely agree with most of the sources I looked at.

But no matter what source I used I found that the DOC beat the DOD, the S&P and the DJIA from 2008-2018.

As mentioned in the introduction I believe the DOD method is expected to work because you are supposedly buying stocks that are at the low end of a cycle and holding them as they move back up to a more normal range. Since the stocks you are buying are all in the DJIA it is assumed that they are all quality companies. But this may not really be the case. Many DJIA companies fall on hard time, cut or freeze their dividend, and can get kicked out of the DJIA. And we know for certain they are not all dividend growth stocks. So perhaps the quality is not quite so guaranteed.

In my opinion stocks which have raised their dividends for 25 years in a row or more, ie the Dividend Champions, have demonstrated their quality and financial strength in a much more definitive way than the stocks in the DJIA. In fact right now only 11 of the 30 Dow stocks would qualify as Champions. DOD tries to find stocks at good value. I believe by using the Dividend Champions as the universe to choose from, rather than the Dow 30, you add a measure of quality to your selections, as well as value. The fact that the DOC produced over $100,000 more than the DOD over the study period, and an improvement on annual return of almost 2% supports my contention.

Conclusion

When selecting stocks one must take into account the quality of the company as well as valuation. The DOD leads us in a good direction, telling us to buy stocks at the low end of the cycle when they are at a good value, but I don’t think it does a very good job at addressing quality. By raising their dividend year after year for over 25 years the stocks on the Dividend Champions list have demonstrated their financial strength over a long period of time. And although some of them may too cut their dividend or fall on hard times, I believe you’re starting at a much stronger point than if you use the Dow 30 as your universe of stocks to choose from.

Thank you for reading my article. I welcome your comments and criticisms.

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.