The FTSE 100 has long been a huge source of returns for hunters of high yield shares. In the third quarter of this year 88.8% of all the dividends paid by UK quoted companies came from the blue chip index. But according to Capita, which monitors these payouts, dividend growth among the biggest companies has been falling for the past three years. By contrast, payouts by FTSE 250 stocks have been trending upwards. So what does that mean for investors and where can the highest mid-cap yields be found?

Hunting for high yield

One of the best known strategies for targeting high yield blue chips is called Dogs of Dow - better known in the UK as Dogs of the FTSE. It works by rotating into the 10 highest yielding stocks in the index every year. Our tracking of the Forecast Dogs of the FTSE screen (which looks at the rolling 1-year yield rather than the current yield) has seen a return of 3.9% over one year and 24.5% over two years. And that’s before dividends. Right now, the 10 highest forecast yielders in the FTSE 100 have a median yield of 6.2%.

One of the criticisms of the Dogs strategy is that if you follow the rules to the letter you could end up buying stocks that are highly concentrated across a few sectors. In fact, the 10 current highest yielders in the FTSE 100 are spread over just five sectors, and four of those stocks are financials. In terms of portfolio management, which we have been writing a lot about lately, this sort of high correlation can leave you very exposed if something goes wrong. Remember that banking stocks were some of the market’s best dividend payers before the sector went into meltdown in 2008.

So what if you were to screen the FTSE 250 according to the Dogs rules? Well, the good news is that there are a number of stocks that offer yields above 6.2%. The obvious problem, as you can see from the table below, is that sector concentration is still an issue. By loosening the criteria - and dropping the minimum yield to 5% - you can get a broader spread of sectors for both indexes. There are 19 companies in the FTSE 100 yielding over 5%, and 31 stocks in the FTSE 250 (Stockopedia subscribers can see those screens here and…

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