Over the years there have been many investing formulas invented that are supposed to be market beaters. One of the more interesting is the "Dogs of the Dow". The Dogs of the Dow theory says that if you start off the year buying the 10 Dow stocks with the highest dividend yield (a stock's yearly dividend divided by its share price), you are going to beat the market, or at the very least beat the returns from the 30 stocks that make up the overall Dow Jones Industrial Average. The theory goes off the premise that these are top companies that have been beaten down but are due for an upswing.

Does it work? Well, not in 2007. And not consistently over longer periods, either, as seen here.

This helpful page shows us that the Dogs returned a negative 1.38% for 2007 while the overall Dow did 6.43% and the S&P 500 did 3.53%. Here's how the Dogs did by company, from best performer to worst:

Merck MRK +33.28%
Verizon VZ +17.32%
Altria MO +17.23%
AT&T T +16.25%
General Electric GE -0.38%
DuPont DD -9.48%
JP Morgan Chase JPM -9.63%
Pfizer PFE -12.24%
General Motors GM -18.98%
Citigroup C -47.15%

You could make the case that Citigroup skewed the results, but of course any time you choose an investment strategy with a very limited number of stocks, you are taking the chance that one bad stock will drag you down. And one good stock can give you outsized returns-but in this case, even Merck's strong year was obliterated by Citi's troubles.

Dogs of the Dow for 2008 (go here to track their performance against the indices):

Citigroup (C)
Pfizer (PFE)
Verizon (VZ)
Altria (MO)
AT&T (T)
General Motors (GM)
DuPont (DD)
JP Morgan Chase (JPM)
Home Depot (HD)
General Electric (GE)

Basically the same list with Merck having been replaced by Home Depot.

Personally I think the Dogs of the Dow doesn't work because of the fact that a company's dividend payout is not necessarily related to any objective standard. Some companies have a higher dividend yield regardless of their share price simply because they offer a fairly high dividend to begin with. Looking at 2007's Dogs, only Merck fell off the list due to good performance knocking its yield down significantly, but Verizon, Altria and AT&T all had big share price jumps and yet are still considered "Dogs" in 2008 by the dividend yield standard.

In short, the Dogs of the Dow is another interesting theory with not a lot of results to back it up.

(Photo credit to kalimistuk.)