On January 1, 2019, we posted our list of the “Dogs of the Dow”. In that list we broke down all the categories that we track. Our closing remark was as followings:
“Our preference is for stocks in the highest p/e or lowest yield stocks.”
Our preference is based on evidence going back to 1996, which shows that low yielding stocks don’t outperform the index which is contrary to Michael O’Higgins book Dogs of the Dow,which claims that the way to beat the index is to invest in the ten highest yielding stocks at the beginning of each year.
Additionally, the data has demonstrated that stocks with the highest p/e or lowest yield generally beat the index and crush the highest yielding stocks. Below, we list the performance of the various categories of Dow Jones Industrial Average stocks as compared to the index.
So far, the best performing category of stocks among the top ten, which is the best relative comparison to the top ten highest yielding stocks, is the lowest yielding stocks with a gain of +23.95%. This gain exceeds the top ten highest yielding stocks by nearly 100%.
Not to be outdone, the ten highest p/e stocks gained +21.70% as compared to the ten highest yielding stocks with a gain of +12.42%.
The changes related to DowDuPont (DWDP) has had a material impact on the data and has been excluded from the categories of the “ten highest p/e”, “ten lowest p/b”, and the “lowest 2,3,4: lowest p/b”.
If the next best stock were added to the “ten highest p/e” category it would have increased the return to +22.92%, the “ten lowest p/b” group would have seen a reduction from +14.35% to +13.16% while adding CVX to the “lowest 2,3,4: lowest p/b” reduced the category performance.
Below is the individual breakdown of the stocks and their performance. The data is as of July 5, 2019.
