For reasons lost in the mists of time, Stockpot started its take on the “Dogs of the Footsie” at the end of January 2017.
That means it is time to review and revise the constituents of this portfolio based on the historically very successful “Dogs of the Dow” system.
You can read all about the origins of the “Dogs of the Dow” and the tweaks Stockpot made to adapt it to the FTSE 100 in the links below, but – long story short – it is a system whereby once a year a sweep is done of the FTSE 100 to find the 10 highest yielding stocks, whereupon an equal amount of money is invested in each stock; in our case, the amount was £1,000 each.
READ Selectively breeding the Dogs of the Footsie
READ Cry havoc and let loose the dogs of the Footsie
We’re now at that stage where we sell the whole portfolio and repeat the whole process, buying a new batch – though as some of the new batch will be the same as the old batch, we’ll be fiddle-faddling a bit to reduce dealing costs because, unlike many other virtual portfolios, this one actually buys at the “offer” price, sells at the “bid” price and assumes £15 dealing costs for each transaction.
Never mind the capital appreciation, check the dividends
Before we review the share price performance of the “Selectively bred dogs of the Footsie”, let’s have a look at how much we received in dividends for our £10,000 investment.
£629.04
That’s a pretty cool dividend yield of 6.29%, which goes into the pot to reinvest. In fact, because we did not fully invest first time around, the cash balance stands at £652.71.
Below, I’ve listed the dividend payments, ranked in order of most generous dividend yield.
Company
Dividends
Dividend Yield
£85.91
8.58%
£81.23
8.13%
£68.85
6.89%
£63.80
6.49%
£62.45
6.26%
£61.39
6.14%
Royal Mail
£55.68
5.58%
Marks & Spencer
£54.80
5.48%
BT Group
£49.75
4.97%
TUI AG
£45.18
4.54%
It was certainly a great year to hold house builders, with the companies – boosted by the government’s “Help to sell” [sic] scheme absolutely awash with money.
The tweaks made to the “Dogs of the Dow” system were designed to limit the possibility of selecting stocks that would cut or cancel their dividends, and despite some pessimists assuming that pension liabilities would put the dividend payments of formerly state-owned companies Royal Mail and BT at risk, both managed to keep the pay-outs going.
The yield on TUI AG (LON:TUI) was a bit disappointing, but I won’t be sorry to see it disappear from the portfolio as it declares its dividends in euros, which is an administrative hassle.
Not just dividend income, but capital appreciation as well
Let's take a look at how the "dogs" have done over the last year. The stocks are listed in alphabetical order.
Company
No. of shares
Total cost
Average price paid
Current bid price
Current value
Profit/ loss £
Profit/ loss %
Profit/loss incl. divs
23
£983
4,275.7p
5,083p
£1,169
£186
19%
£250
206
£1,001
485.88p
617.2p
£1,271
£271
27%
£357
BT Group
323
£1,002
310.15p
259.95p
£840
-£162
-16%
-£112
197
£998
506.72p
359.9p
709
-£289
-29%
-£227
419
£1,000
238.78p
238.78p
£1,156
£156
16%
£217
Marks & Spencer
293
£999
341.02p
310.7p
£910
-£90
-8.9%
-£34
51
£1,000
1,960.41p
2,621p
£1,337
£337
34%
£406
Royal Mail
239
£998
417.58p
464p
£1,109
£111
11.1%
£167
TUI AG
84
£995
1,184.86p
1,617p
£1,358
£363
36%
£408
589
£999
169.65p
198.95p
£1,172
£173
17%
£254
- Cash: £653
- Current market value of portfolio (including cash): £11,684
If memory serves, one version of the “Dogs of the Dow” recommends filtering out the 10 stocks (from the Dow Jones index) that have the highest dividend yield and then purchasing the five cheapest.
I am not so sure this tweak applies to the UK, where stocks are priced in pence as opposed to the US, where stocks are priced in dollars – often hundreds or even thousands of dollars.
In the table above I have put in italics the name of the five cheapest stocks, and a quick bit of arithmetic tells me that, even with dividend income included, those five made an aggregate profit of just £11, whereas the “expensive five” made a profit of £1,675.
Maybe there is a case to be made for flip-flopping the rule for the UK, screening out the 10 highest yielders and then buying the five most expensive stocks.
Factoring in dividend payments, the best performing stock of the year was holiday firm TUI AG (+£408), which just pipped house-builder Persimmon (+£406).
The worst performer was outsourcing giant Capita, which lost £227 and its place in the FTSE 100, so it won’t be back this year. The second worst performer was BT Group, which lost £112; it may have maintained its dividend pay-out but the Italian accounting scandal last year did not do it any favours in terms of investment appeal; as we’ll find out later in the week, it will be back this year.
Stay tuned to this channel for the refreshed list of the “Selectively bred dogs of the Footsie”.