Dogs of the Footsie: have our 10 shares lost their bite?

The dividend disappointments making our Dogs look bashful.

UK shares have gained ground in recent months, despite the ongoing Brexit saga and the resignation of Theresa May. But how did our high-yield blue-chip portfolio perform against a backdrop of macroeconomic uncertainty and political upheaval?

The Dogs of the Footsie strategy involves building a portfolio of the 10 FTSE 100 stocks with the highest historic dividend yields, investing the same amount in each and holding them for a year. We lined up 2019’s Dogs of the Footsie list on 1 February and checked up on them in May.

How Augusts Dogs shape up

Company Price (p) Yield (%)
Centrica 73.38 16.4
Evraz 612.8 15.5
Persimmon 1953.0 12.0
SSE 1,097.5 8.9
Imperial Brands 2,136.0 8.8
BT Group 186.0 8.3
TUI 816.2 8.1
Standard Life Aberdeen 291.5 7.8
ITV 106.7 7.5
Aviva 400.8 7.5

Notes: The highest-yielding FTSE 100 companies, as at 1 August 2019. Source: SharePad 

Tough 2019 so far

Over the long term, the Dogs strategy has paid off, with the portfolio having beaten the wider FTSE 100 index in 12 of the 18 years over which we have run it. But 2019 is proving a tough year for the Dogs.

Over the past six months, the portfolio has lagged the wider market significantly: it has achieved an average total return, with dividends included, of -1%, compared with 10.8% gains from the FTSE 100. The portfolio’s 5.6% fall in share price terms also pales compared with the FTSE’s 8% gains.

The Dogs’ difficulties stem primarily from painful dividend cuts at Centrica and Marks & Spencer that have helped push shareholders’ total losses deep into double digits since February.

The standout performer in the kennel is Russian steel miner Evraz, which returned 33% over the period. It tripled its net profits in 2018, buoyed by a stronger iron ore price. It is yielding 15.5% and its second-half dividend is a whopping 40 cents (33p) a share. However, its dividend cover is just 1.4 times, so it’s debatable whether the yield is sustainable at this high level, especially if the commodity bull run falters.

Asset manager Standard Life Aberdeen is the next-strongest performer, with a total return of 23% and a 17% rise in its share price – which still looks cheap at 291.5p. The price had been trending downwards following the merger of the two groups in 2017, but started climbing in February.

Advertising agency WPP has also recovered somewhat – following the loss of its controversial founder, Martin Sorrell, and a profit warning in 2018 – to record an 11% rise in its share price over the past six months that has pushed its dividend down to 6.4%.

In the middle of the pack are Vodafone and Aviva. Both achieved a positive total return, although the telecoms giant chopped its dividend by 40% in May.

British Gas owner Centrica is the dirtiest dog in the kennel. Its share price fell by more than 45% and it suffered a total return loss of almost 40%. At the end of July, Centrica announced a £569 million first-half loss and slashed its dividend by 58%. Investors punished its shares harshly and embattled chief executive Iain Conn said he would step down. British Gas has lost swathes of customers to more competitive rivals in the past few years, and come under pressure from the government’s energy price cap.

Housebuilder Persimmon has also struggled.Its share price fell by 16.5% over the six-month period and its total return by 6.7%. Negative news has hit its shares – a Channel 4 Dispatches documentary in July highlighted customer complaints. In its half-year results, the group attributed a 4.5% fall in revenues to efforts to improve customer satisfaction, and said its full-year volumes will reflect its new customer-centric initiatives.

If you had set your dogs running on 1 August, you would see ITV, SSE and TUI replacing WPP, Marks & Spencer and Vodafone in the high-yield kennel.

Centrica and M&S keep Dogs down

Company Share price change (%) Total return (%) Historic yield at inception* (%) Current historic yield** (%)
Persimmon -16.5 -6.7 9.7 12.0
Standard Life Aberdeen 17.4 23.0 9.5 7.8
Vodafone 9.23 12.2 9.5 5.5
Evraz 27.1 33.1 9.1 15.5
Centrica -45.5 -39.3 8.8 16.4
Imperial Brands -16.0 -12.2 7.3 8.8
WPP 11.2 15.5 6.8 6.4
BT Group -15.7 -15.7 6.7 8.3
Aviva -2.52 2.4 6.5 7.5
Marks & Spencer -25.3 -22.7 6.4 6.7
Average -5.6   7.9 9.5
FTSE 100 8.0 10.8   4.26

Notes: Figures show performance for the period 1 February 2019 to 1 August 2019. *Inception date is 1 February 2019. **As at 1 August 2019. Source: SharePad

 

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