Dividend Dogs with more bite: How to hunt for high yield large-cap shares

Friday, Apr 06 2018 by
Dividend Dogs with more bite How to hunt for high yield largecap shares

Britain’s blue chip stocks have been under pressure in 2018. Prices have trended down since the start of the year, slicing a noticeable 6.5 percent off the FTSE 100. But one of the potential upsides of these declines is that forecast dividend yields on some of the country’s biggest companies have risen quite markedly in places.

One of the best known approaches used for picking out high-yield large-caps is called Dogs of the Dow. It’s a strategy based on the work of Michael O’Higgins and John Downes in their book, Beating the Dow.

The aim of their strategy is to buy the 10 highest yielding stocks in a large-cap index like the Dow Jones or the FTSE 100. Part of the appeal of this method is that it really is a very straightforward set of rules.

In theory, the highest yielding stocks are usually out of favour for some reason, and their depressed share prices push the yields up further (hence why these are ‘Dogs’). But the trade-off is that their size and financial muscle ought to mean they’ll recover and come back into favour over time.

Critics of the strategy point to the fact that, beyond the financial strength of large-caps, there aren’t many safety nets in the Dividend Dogs approach. After all, blue chips aren’t immune from cutting dividends, and this strategy does demand you buy companies usually with negative price momentum.

Despite the drawbacks, high yields are obviously appealing. There are two versions of this strategy - one that uses current yield (here) and another called the Forecast Dividend Dogs, which uses 1 year forward rolling yields. This second version is quite interesting because Stockopedia’s latest tracking shows some pretty lacklustre price performance (not accounting for dividends).

The chart below speaks volumes - the most recent trends among high yield large-caps in the UK, Europe, U.S. and Australia, are pretty negative. It shows that larger, high yielding shares have been under pressure over the past year or so - but the forecast yields have been rising.


So what names is this this strategy coming up with at the moment? The top 10 stock are listed below...

(Note that the screen includes forecast yields one year ahead. It also considers forecast dividend cover, which is a measure of how well the dividend payout is covered by…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>

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32 Comments on this Article show/hide all

lightningtiger 9th Apr '18 13 of 32

Seems to have duplicated my reply for some reason.

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Edward John Canham 9th Apr '18 14 of 32

In reply to post #351423

Juridica Investments (LON:JIL)

This is winding down - my point was these are essentially returns of capital as far as I can see. But enjoy.


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Stephen Bland 10th Apr '18 15 of 32

For anyone interested, here's my version of the current Dogs ten HY from the FTSE100 based on Stockopedia's data. It adds my rule of sector diversification:

Company      Yield%

Persimmon 8.87

Centrica 8.36

Marks & Spencer 6.98

Imperial Brands 6.73

Vodafone 6.57

Micro Focus 6.00

Direct Line 5.84

Standard Life Aberdeen 5.80

BP 5.75

Rio Tinto 5.66

Due to my added feature of diversification, this is a far less risky Dogs portfolio than the list put up originally. In line with the Dogs method, no personal opinion or investigations of these shares has been applied so that they are purely the results of the two mech filters of yield and sector diversification.

The idea of the Dogs is that the selections are rebalanced annually by equal amounts into the then latest ten HY selections, adding in dividends received. Then repeat each year for a very long time.

Note that the Dogs is not really an income strategy, it is a long term growth strategy. Yield is just the tool used to make the mech selections and the dividends are there to add to the capital value, so I see it as incorrect to consider it as an income approach. You don't draw the income if you are following the method.

I'd add that I don't follow this or any mechs, though many years ago I was interested in them. I contributed to the thread because I have a strong interest in income investing. 

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pka 10th Apr '18 16 of 32

Stephen Bland's suggestion of adding sector diversification to a Dividend Dogs strategy is similar to adding sector and industry group diversification to a High StockRanks strategy in Ed Croft's NAPS portfolios, although to be fair Stephen had the idea first. As the NAPS portfolios have better past performance records than the Dividend Dogs strategies, I suggest someone interested in creating a high yield portfolio could add the following high yield criterion to Ed's standard selection criteria for the NAPS portolios:

"Yield % Rolling 1 Year" > 1 x "Market Median"

This additional criterion would restrict the portfolio to only contain stocks with above-average forecast dividend yields. The other criteria would ensure that the portfolio contained stocks with high StockRanks, i.e. with high Quality, Value and Momentum characteristics, and that the stocks are diversified by sector, industry group, size and risk characteristics.

A description of the rules for selecting NAPS portfolios can be found here:


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Dave_17 12th Apr '18 17 of 32

I'd appreciate any feedback on my general view on high yield companies.

I look at dividend yield as a two sided equation (obviously), high yield is either due to suppressed share price, or enhanced dividend (or as is normal a combination of the two). Ever since the banking crisis I tend to look at HY as a warning flag as much as a buy flag. Not that I'll avoid all HY stocks but I always start with the question "why has Mr Market ignored this yield and why hasn't the price increased due to demand as people get some of this free money". If it's not obvious then I assume Mr Market knows something I don't and has priced in some risk.

If a company has been paying out similar yields for years and share price hasn't really gone anywhere (not a problem for some), then I wonder what, if anything, will change that situation so there's some potential upside to balance any potential downside the market may see that I can't. Normally for a company that's been doing the same thing year in year out I think there is more chance of things going wrong than fundamentally improving to grow the share price. I'm sure we can all name loads of big HY companies that at in the past were considered "safe" and then had a turn for the worst.

I'm not mixing up growth v income stock, just that HY = alarm bells for me. A healthy attitude or am I getting confused and missing something??????

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Stephen Bland 13th Apr '18 18 of 32

You are missing something. HY does not have to equal problems, on balance. On the contrary it equals, on balance, opportunity. It's a popular though incorrect idea that HY must always equal "alarm bells". It may do in some cases but very often it doesn't and the belief that it must always do so is quite wrong.

The reason is that HY is one feature of a value approach and value works. So shares offering HY, especially big caps, are more likely to be doing so because of poor short term sentiment rather than underlying long term difficulties that may destroy the business. That being the case, they will tend to grow capital value long term as well as delivering the principal objective of income.

But this in my view works only on a diversified portfolio basis because not all HY shares will do the business over time. Some will indeed turn out to be a crock because equities are a risk game, there are no sure things, hence the over riding requirement for a diversified portfolio particularly where the investor is depending upon the income. In my long experience with such approaches, the good performers in the portfolio more than make up for the bad but investors have to think long term for this to work.

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ddinksdadd 20th Apr '18 19 of 32

In reply to post #352958

Hi Stephen,
I have read the comments and your contribution regarding this article with interest.

The whole 'dogs of the dow' concept was neatly laid out as i recall by the original Motley Fool book, which I read and basically transformed my approach to investing.

I have reached a point in my investing life that I basically need 10% PA to be comfortably retired so have been working on ways to dial down on the risk for the purpose of 'shock' insulation and once again i find myself drawn to this whole area of dividend led long term growth investing.

That being said i'm suitably convinced these guys on Stockopedia have something to contribute (big time!) so i've set up two portfolio's on here each with a theoretical million £

The first I've called the 'PYADogs' which are the ten suggestions you have made in this narrative, no tweaks, pure copy!

The second I have called 'quality dogs' as prior to choosing them I have pre screened them for a stock rank greater then 70. beyond that I have followed your advice regards sectoral diversification, with ideally one candidate from each of the 10 economic sectors. This is also in line with the NAPS idea also. I had to make one tweak in that following my rules there were no candidates from the 'tech' sector as large cap, high yielding tech companies are as rare as hens teeth! In the end I accepted MicroFocus as the best 'tech' share to fit the bill.

My picks are : BP. ,G4S ,GSK, LGEN, MCRO, PSN, RIO,SSE ,VOD , MRW

I calculate the average yield across this selection if held for a year is approx. 6%

Essentially I am doing this to test if your ideas coupled with selecting high stock rank shares can add value. The 2 portfolio's are 4 days old but so far the results are very positive for the whole 'high yield' led 'long term growth' style of investing. So far:

Quality Dogs +2.7%

PYADogs + 2.97%

Soooooo far no evidence of a 'stock rank edge' however its only 4 days and i intend to give this at least 12 months to see what happens. Given the nature of this kind of investing and the fact that the 'natural yield' of both portfolio's are close ( 6% vs 6.6%) i have decided to ignore the dividends and also ignore the initial dealing costs as i am only interested here in relative performance. The way i see things , this strategy wins by slowly and incrementally out performing the market over many years and the pure magic of compound interest does the heavy lifting, however my main interest is rather more short term as i wish to see if Stockranks add value to the basic plan. As a strategy.

I shall update quarterly and re-adjust annually as per the original strategy.


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Stephen Bland 20th Apr '18 20 of 32

Hello Jim

I'd say that 12 months is inadequate for a test so the results will be inconclusive as an indication of long term performance of both income and capital because sheer luck will play too big a part  as will market cycles, where one year will not usually cover a whole cycle. But over say ten years, luck largely drops out, one or two cycles will likely have been endured and the probable trend of underlying performance is asserted. As for four days, I hope you realise that this is completely misleading and tells you nothing about how it will pan out over time.

Also, the mech portfolio I put up was just an exercise to counter the original article which suffered from excessive risk in my view, as I said at the time, by the absence of a sector filter. I never intended to follow it myself. Also, be aware that I'm not that convinced of the merit of Dogs schemes because something a bit similar was a complete disaster over a five year test on the Fool a long time ago, though their version was quite flawed.

I take no responsibility for the subsequent performance of either income or capital or anything else that may befall it. In other words if it's lousy, that's nothing to do with me, if it's fine, then I'll take the credit :~)

I wish you all the best though.

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ddinksdadd 21st Apr '18 21 of 32

In reply to post #355508

hello again,

I take on board your comments and although i have talked about a 12 month time frame this is more concerned with the interval that I will run the portfolio before re-balancing as per the original 'dogs of the dow' policy. I intend to keep this running over at least 5 years. I suppose i could run it over 20 years but that would be pointless from my own selfish perspective as i am 55 this year! It would however be interesting maybe to others who are 30 ish and who could use it when investing they're pension money!

My general idea is to try to find out if using stockopedia 'stock ranks' together with sectoral balancing, rather like the NAPS portfolio, will be the key to making the origional idea work better. As you point out the system when tried on the MF was a bit of a disaster.

Just to make it clear I haven't risked any real money here , nor would I suggest anyone else do so. The exercise is entirely theoretical at this point in time however my eldest son is 22 at the moment and has just been auto-enrolled in NEST. I'm not impressed by what is on offer so if I could devise a system for him to follow in a SIPP using an improved 'dogs' strategy, over the next say 35 years that would be a good thing!

Anyway another good day for the canines!

Since inception ( 4 days ago)

Q Dogs + 3.42%
P Dogs + 3.76 %

Excluding Dividends and trading costs

Its so short term that these figures are for amusement only! However it will be interesting to see the results in 1,3, and 5 years.

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purpleski 24th Apr '18 22 of 32

In reply to post #351738

Two great posts thank you. It is not a strategy I follow either but the simplicity of it, like Magic Formula Investing (I don’t use that either) appeals to some part of my brain but another part tells me that if investing were that simple and these strategies were that successful over the long term and in all markets we would all be doing it!

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Stephen Bland 22nd May '18 23 of 32

For dog lovers and just for fun here's the latest mechanical top five and ten HY from Stockopedia's FTSE100 data, bringing in my additional filter of diversification.

Company   Yield%
Persimmon   8.25
Centrica   8.19
BT   7.58
Imperial Brands   6.30
Marks & Spencer     6.23
Standard Life Ab   5.76
Direct Line Ins   5.44
Micro Focus   5.38
HSBC   5.07
United Utilities   4.96

The most notable change from last time is the exit of the oil and mining sectors represented by BP. and RIO as their prices rose to drive down their yields. The new sectors to replace them are water utes and banks, represented by HSBA and UU.. Telecoms are still there but the sector rep switched from VOD to BT.A.

To reiterate, these particular dogs are just for Christmas. More specifically to hold for one year then reinvest in the new top five or ten mech HYs, rebalanced equally after adding in dividends received during the holding year.

The hope is that over the very long term good capital gains will be made. It won't work every year but over time, believers think that the good years will far outweigh the bad to deliver an excellent long term return. I doubt though that many will persevere long enough to know.

Most mech players that I've seen, full of enthusiasm after a previous period of outperformance, will give up as soon as the inevitable bad patch is encountered. If you really believe in mechs like this you have to follow it through thick and thin for many years, probably ten at least. That's very hard to do when your belief is tested by poor performance on occasion.

As before anyone following this does so entirely at their own risk. It's not a strategy that I advocate or follow, in fact I'm rather sceptical about it, and I accept no responsibilty for any outcomes.

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ddinksdadd 22nd May '18 24 of 32

Well one month in so how are the woofers doing?

Quality Dogs +9.96 %
PYADogs +9.26 %

These figures are ex. costs and dividends of course. This is important because as Stephen rightly points out this is a GROWTH strategy as opposed to an INCOME strategy. Dividends here are the 'icing' rather than 'cake' of the strategy, although they do form the core of the selection process.

Both portfolios have gained the most to exposure to Rio Tinto (LON:RIO), Micro Focus International (LON:MCRO) and BP (LON:BP.) up 18.6%,18.5% and 16.3% respectively.

Both have only one laggard in the form of Vodafone (LON:VOD) ,down 3.5% so in both case 9/10 positions are in positive territory.

So, overall stupidly well done to both breeds! However its worth noting that over the last month the FTSE100 has been extremely strong, so it would be highly unusual if these choices had not done well.

Scant evidence so far that my addition of a 'highest stockrank in sector' filter has added anything to the process so far but i live in hope.

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Stephen Bland 23rd May '18 25 of 32

I appreciate your monitoring this, cos I'm not, but you'll accept I'm sure that one month is nothing against the large number of years required to really test these strategies. In addition to the price fluctuations being likely just noise in such a short time, it brings in little or none of the dividends which are an important contributory factor to the  long term gains potential of the approach to which dog lovers subscribe.

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Stephen Bland 25th Jun '18 26 of 32

For dog lovers and just for fun, a month later here's the latest mechanical top five and ten HY from Stockopedia's FTSE100 data, bringing in my additional filter of diversification. As always no investigation or opinon of these shares has been applied.

Company Yield%
Persimmon 9.12
Centrica 7.59
BT 7.04
Imperial Brands 6.45
M&S 6.29
Standard Life 6.19
Direct Line 5.86
Micro Focus 5.37
HSBC 5.33
United Utilities 5.29

Somewhat unusually, the list is identical in both the actual selections and their order to last month.

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Stephen Bland 24th Jul '18 27 of 32

For Dog lovers, a month later here's the latest mechanical top five and ten HY from Stockopedia's FTSE100 data, bringing in my additional filter of diversification.

Persimmon 9.66
Centrica 7.84
Vodafone 7.56
Standard Life 6.83
Imperial Brands 6.14
Direct Line 6.10
Marks & Spencer 6.06
Micro Focus 5.64
United Utilties 5.51
Rio Tinto 5.38

The two changes from last month are that Vodafone replaces BT Group though this still leaves the list with a telecom sector holding and HSBC drops out to be replaced by Rio Tinto, creating a sector switch from banks to mining.

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Stephen Bland 9th Sep '18 28 of 32

For Dog lovers here's the latest mechanical top five and ten HY from Stockopedia's FTSE100 data, bringing in my filter of diversification.

Vodafone 8.20
Centrica 8.10
EVRAZ 6.91
Standard Life 6.89
Imperial Brands 6.51
Marks & Spencer 6.37
Direct Line 6.29
HSBC 6.04
Shell B 5.95
Micro Focus 5.59

There are three changes from the last run. Out go Persimmon, United Utilities and Rio Tinto and in come EVRAZ, HSBC and Shell B. Looking at sectors, the list drops housebuilders and water utes to be replaced by banks and oils. Mining continues to be represented but with a change of share.

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Stephen Bland 27th Nov '18 29 of 32

Haven't done this for a while so thought I'd update it, though not sure if anyone is really interested. If not I probably won't bother again, especially since I'm not a follower or even a convinced believer in this strategy.

Here's the latest mechanical top five and ten HY from Stockopedia's rolling 1 year yield data on the FTSE100, bringing in my filter of diversification.

Taylor Wimpey 11.80
EVRAZ 9.93
Standard Life Aberdeen 9.65
Centrica 8.81
Direct Line 8.71
Imperial Brands 8.53
Vodafone 7.89
Royal Mail 7.53
WPP 6.71
Marks & Spencer 6.17

Changes from the last run drop HSBC, Shell and Micro Focus, replaced by Taylor Wimpey, Royal Mail and WPP.

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john652 27th Nov '18 30 of 32

I think it’s interesting Stephen, and to my mind there are so many high yields in the ftse Ive been thinking about index trackers. Then at the weekend I read in money week that Bloomberg stated the ftse all share is running at a 4+ % yield. So for me, given all the negativity towards the ftse , that seems a very good entry point for a relatively safe (diversified) yeild.

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Stephen Bland 27th Nov '18 31 of 32

But bear in mind as I've pointed out previously, despite appearances the Dogs is not an income strategy, it is a growth strategy that uses yield as the selection tool.

As you say, the indices are showing quite historically high yields at present but you could get a lot more income, if that's what you are seeking, from a portfolio of say 15-20 diversified (that bit is critical) shares drawn from the FTSE100. More risk though than a whole index tracker.

Unlike my Dogs list above, for an income portfolio I would not advise totally mechanical selection from a database. It's very useful as an initial tool but you need to go back to accounts and latest news to try and get a feel for whether the dividends are sustainable.

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Stephen Bland 5th Jan 32 of 32

As there was slight interest shown last time, it may be useful to see the latest version now in view of the sizeable market fall since the last one. Here's the current mechanical top five and ten HY from Stockopedia's rolling 1 year yield data on the FTSE100, bringing in my filter of diversification.

Taylor Wimpey 12.90
EVRAZ 9.79
Standard Life Aberdeen 9.64
Direct Line 8.88
Vodafone 8.60
Imperial Brands 8.57
Centrica 8.50
Marks & Spencer 7.47
WPP 6.99
Lloyds 6.70

Interestingly in view of the fall in prices, there is only one change from the last run as Lloyds replaces Royal Mail, making a sector switch to banks from mail services. One might have expected perhaps that there would be several changes in these circumstances.

To reiterate, the idea of the Dogs is that the selections are rebalanced annually by equal amounts into the then latest five or ten HY FTSE100 selections, adding in dividends received. Then repeat each year for a very long time. Also, the selections are entirely mechanical from the database so that no further investigation is carried out and no personal opinions are permitted to influence them.

One further point that I've made before. This is not definitely not a long term hold High Yield Portfolio income investing strategy but a long term capital growth approach. I would not construct an HYP in a wholly mechanical way like this.

Happy New Year!

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