Over the past 17 years, the Dogs strategy has produced spectacular performance. For example, the 10 Dogs of 2009 made an average return of 86.5 per cent after one year compared with 31.9 per cent for the FTSE 100 index (dividends reinvested).
The Dogs are also well ahead over the past 17 years, growing by an average annual 13.7 per cent in total return terms, more than twice the 6.1 per cent total return figure for the FTSE 100 index.
However, the 2017 portfolio was a disappointment. It produced a below-inflation return of 1.7 per cent over the year, based on share price performance alone, and 8 per cent when dividends are included. It failed to beat the FTSE 100 index, something that has happened in just five of the 17 years that Money Observer has been running the portfolio.
It could have been so different. If our Dogs hadn’t included Capita, the troubled outsourcer whose share price plummeted at the end of January after it issued a profits warning, we would be trumpeting yet another year of outperformance for the Dogs of the Footsie. Of course, Capita was in there, and the result was a disappointing year for our portfolio.
More positively, the result shows that even a portfolio of just 10 companies provides sufficient diversification to limit the damage done. The portfolio still finished the year in positive territory, though only just in price terms. Seven of the companies in the portfolio did better than the index in total return terms, and six in price terms, compensating for the laggards.
Changes in the 2018 line-up
It is time to reset our Dogs of the FTSE 100 portfolio. While half of 2017’s portfolio make it onto this year’s list, there are some new names. For a second year running, our portfolio spans a diverse spread of sectors, from utilities to telecoms, financial services companies to retailers, and drug companies to tobacco firms.
Please note that the investment of dividend payments is not included in the current value (notional £1,000 invested in each) as listed below. The current value below does not allow for 0.5 per cent stamp duty reserve tax, nor for Interactive Investor's £10 dealing charge in each share (£5 for frequent traders).
Investors can follow this portfolio or set a Dogs portfolio up themselves at any time. The first step is to find the 10 highest yielding shares of the FTSE 100 index. You can do this here: www.iii.co.uk/markets/?type=stockfilter.
Check that potential members have not already warned that their dividend will be cut. When you have identified the 10 shares, split your chosen investment level between all 10 shares equally and hold all of them for one year.
How the Dogs are doing
|Company||Share price change (%)||Total return (%)||Historic yield at inception (%)*||Current historic yield (%)**|
|Marks & Spencer||-0.3||3.7||6.2||6.2|
|Royal Dutch Shell B||1.8||6.1||5.8||6.1|
Note: Performance figures 1 February to 1 November 2018. * Inception 1 February 2018. ** As at 1 November 2018. Source: Sharepad