Meet the Dogs of the Footsie 2016
26th February 2016 17:27
Despite a poor showing in 2015, during which time the portfolio shed twice as much as the (almost 18%), our sister magazine Money Observer's "Dogs of the Footsie" are comfortably ahead of the blue-chip index over longer periods.
Over the past decade, investors betting on the Dogs portfolio would have bagged a 93% gain on a total return basis, compared with 50% for those betting on the index.
Our strategy is simply putting an equal amount into each of the 10 stocks with the highest yields in the FTSE 100 index, excluding those that have already announced their dividends will be cut, and set them running for 12 months before we sell and pocket the profits.
We review the portfolio after every year before making all the necessary tweaks - and you can view this year's constituents below.
BHP Billiton
Share price 676.4p Yield 12.93%
A yield as high as this is usually a sure-fire indication that the dividend will be cut. The market will be astounded if this does not happen with the interim results announcement.
However, because a cut has not yet been confirmed, has to be included in the portfolio. Like its rivals, the company is cutting costs and shutting production to reflect the fall in demand.
Rio Tinto
Share price 1,714p Yield 8.85%
The fact that yield is so much lower than BHP's reflects the reality that it is in a much better position than its rival, financially and in production terms.
The company said in December that it would maintain its dividend, although some analysts question whether, given the cuts in the industry, this is wise.
Royal Dutch Shell
Share price 1,518p Yield 8.73%
The oil giant was the biggest dividend payer in the UK last year and it has promised to at least maintain its payout in 2016.
Having pressed ahead with its £36 billion offer for , despite shareholder unrest and the fact that the plunging oil price gave it a good reason to renege on or renegotiate the deal, may be reluctant to upset investors further with a cut.
However, the plunging oil price will weigh heavily on its finances, and it remains to be seen whether BG will be a good acquisition.
Aberdeen Asset Management
Share price 246.5p Yield 7.91%
had been growing strongly, and is rated highly for the skill of chief executive Martin Gilbert in finding acquisitions at sensible prices which have then been successfully integrated, and because of its strength in fast-growing emerging markets.
The latter has now become a handicap, however: investors have pulled funds out of these markets as China has slowed, and they are fretting about high borrowings by other countries in the region.
BP
Share price 376.1p Yield 7.41%
Like Shell's, profits have been hit by the falling oil price: full-year results for 2015 showed a drop of more than 50% in profits on the previous year, and BP continues to shed jobs and cut costs.
In addition, the company is still paying for clearing up after the huge oil spill in the Gulf of Mexico, which led it to suspend its dividend completely for three quarters in 2010.
However, chief executive Bob Dudley has reiterated his "commitment to sustaining [its] dividend and then growing free cash flow and shareholder distributions over the long term".
HSBC
Share price 492.3p Yield 7.16%
This bank alone accounts for two-thirds of all bank dividends, according to . Its dividend is denominated in dollars, so for UK shareholders, sterling payments have been boosted by currency effects, although payment in dollars has barely risen - last year's increase was 1 cent, or 2%. While a cut seems unlikely, future growth will depend on exchange rates as well as the bank's prospects.
Pearson
Share price 789p Yield 6.46%
Education group has a history of setting ambitious targets, and a record of missing them. A trading update in January 2016 confirmed this trend: profits in 2015 are likely to come in at below City expectations and be lower still in 2016.
However, by 2018, following further action to simplify the business, the company should be making at least £800 million. It is committed to maintaining its dividend, but the payment of 52p a share will barely be covered this year.
Centrica
Share price 492.3p Yield 5.97%
Supplying domestic gas and electricity should be a fairly predictable business, and for other utility companies it has resulted in safe and rising dividends. However, small exploration and production business has been badly affected by falling prices.
A strategic review by new chief executive Iain Conn resulted in a commitment to focus on "customer-facing businesses" and reduce investment in exploration and production. Conn also committed to a progressive dividend policy, albeit from a much lower base.
GlaxoSmithKline
Share price 1,439p Yield 5.56%
The pharmaceuticals giant has been increasing its dividend as earnings have been falling, so dividend cover - the amount by which earnings exceed the payout - has been eroded.
So far, the group has held its dividend, and given its importance to income funds, it would be a shock if that changed. is, however, under pressure to restructure to improve returns, and these can only increase if its prospects dramatically improve.
J Sainsbury
Share price 245.1p Yield 5.39%
Like the rest of the retail sector, has suffered from competition from discount chains such as Aldi and Lidl, and from the impact of years of over-expansion into expensive, overlarge stores.
It has suffered less than rivals: third-quarter retail sales were up 0.8% and it has been winning back customers. But shareholders are uncertain about its proposal to acquire Argos owner to beef up its online offering.
Source: Yields and prices from Digital Look as at 29 January 2016.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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