We reveal this year's line-up in our Dogs of the Footsie investment strategy.
Once again, it’s time to reset our Dogs of the Footsie portfolio by choosing the 10 highest-yielding shares the FTSE 100 index has to offer. This year, seven names have been carried over from 2019 into the new line-up. Three new entrants each offer attractive yields of around 7%. Here are our Dogs of the Footsie for 2020.
- Read our accompanying Dogs of the Footsie analysis piece
- Interested in shares? Examine 10 shares to deliver a £10,000 annual income in 2020
- UK share tips: six ‘value’ stocks for 2020
- Six ‘speculative’ share ideas to evaluate at the start of 2020
- Mark Slater on the key reason to sell a share
- Explore our FTSE Sector Watch columns
Dogs of the Footsie for 2020
352.6p, Yield 16.1%
The Russian steel producer boasts an impressive yield, but its dividend cover – the number of times its earnings cover its dividend – is scant and the company has large debts. This means it could suspend dividend payments in the future. Profits have been falling, but its most recent trading update shows a 6% quarterly rise in steel product sales. The share price shed almost 30% over 2019. On a total return basis, the stock lost 17%.
84.84p, Yield 14.1%
British Gas owner Centrica’s shares have taken a battering over the past year. They were down by 38% as the business suffered from lower energy prices and customers deserting it. This makes it the worst performer in the kennel in share price terms, although it pays a whopping 14.1% dividend. However, it has cut its dividend several times in recent years. A series of profit warnings dogged Centrica in 2019, but it has regained some ground recently.
1951p, Yield 10.6%
Big Tobacco has been out of favour as investors think more carefully about the sustainability of their portfolio holdings. Imperial shares fell by 23% in 2019 – a period the CEO has described as “challenging” – due to tough trading conditions, increased competition and regulatory uncertainty in the US around vaping. But the shares rebounded sharply from their December lows at the start of 2020, its senior executives have been buying up more shares and some brokers are tipping the stock as a buy.
3053p, Yield 7.7%
Housebuilder Persimmon was the strongest performer in the 2019 Dogs portfolio. It gained nearly 30% in share price terms and paid a healthy 7.7% yield; investors earned a tasty 38% total return with dividends reinvested. The market reacted positively to its January trading update, in which it said its new approach to “put customers before volume” was working as planned. New home completions were down 4% year-on-year in 2019 and group revenues down 2.4%. The firm’s renewed focus on customers is a response to complaints about the quality of its new-build homes.
160.92p, Yield 9.6%
The telecoms giant’s shares slumped by around 30% in 2019. In a worse-than-expected third quarter, the firm reported a 2% fall in revenues and a 4% fall in cash profits because of “ongoing headwinds from regulation, competition and legacy product declines”. BT will have to spend an estimated £500 million to remove Huawei equipment from its 5G and broadband networks over the next five years, after the government capped the use of the Chinese company’s equipment in key infrastructure. However, positive signs include the potential of Openreach to supply fibre broadband more widely, a cost-cutting drive and BT’s exclusive rights to high-profile sporting events.
Standard Life Aberdeen
301.5p, Yield 7.5%
Standard Life Aberdeen had a good 2019. It produced a 28% total return and a rise in share price terms of almost 20%, compared with just 4.5% from the FTSE 100. This ranks it as the second-best-performing Dog in our kennel. Some analysts have warned that the £7 billion asset manager’s 7.5% dividend yield is unsustainable because its ability to generate cash is weak and it only has dividend cover of around 1.3 times. However, the firm’s management team has committed to maintaining its dividend in 2020.
398.4p, Yield 7.5%
New boss Maurice Tulloch unveiled a fresh strategy for Aviva in 2019 that promises to reduce the group’s £1.5 billion debt, cut its costs by £300 million a year, and separate its UK life and non-life insurance business. Aviva posted a small share price fall overall for 2019, but it delivered a 3.5% return with dividends included.
Royal Dutch Shell
2000p, Yield 7%
The oil major released disappointing results for the fourth quarter of 2019: lower income across all parts of the business, an 11% fall in revenue year-on-year in the face of lower oil and gas prices, and slimmer margins in oil refining and chemicals. The results led the firm to slow the pace of a $25 billion (£19 billion) share buyback programme. Shell pays a reliable yield, currently of 7%, but this could come under pressure as analysts downgrade their earnings expectations.
551.8p, Yield 6.9%
Asia-focused global bank HSBC’s 6.9% yield makes it popular among income-seeking investors, but it pays out almost 80% of its profits as dividends – with dividend cover of just 1.2 times – and has cut its payout a couple of times. HSBC would have given you a total return of -7.4% last year, while its share price fell by more than 13%. Investors will be watching for the results of the bank’s strategic review, overseen by interim CEO Noel Quinn, to assess the future direction of the business and whether its yield is safe.
222.5p, Yield 6.8%
The commodities giant is vulnerable to macroeconomic concerns such as US/China tensions and slowing global growth. Glencore shares shed 28% of their value in the year to 31 January, a year in which its half-year results showed sharply falling profits and in which the UK authorities began to investigate allegations of bribery relating to the firm. However, senior executives are due to retire this year and returns could be higher, as the group has moved to reduce its debt. What’s more, Glencore could benefit from growth in the electric vehicle market because it produces cobalt, a key material in the manufacture of lithium-ion batteries.
Yields and prices: SharePad, as at 31 January 2020.