Dogs of the Dow

Fans of this theory say that bargains can be spotted by looking for high dividend yields – the annual dividend as a proportion of the current share price.

Devised by US fund manager Michael O'Higgins, this strategy exploits the tendency for stockmarkets to overreact to bad news, which throws up cheap shares.

Fans of the theory say that bargains can be spotted by looking for high dividend yields the annual dividend as a proportion of the current share price. Buy these and you not only get a big income, but the likelihood of capital gains too when share prices recover.

Between 2003 and 2007, for example, Peter Temple regularly picked the five companies with the lowest share prices from the top ten yielding stocks. His annual gains ranged from 30% to 117%. Over the last year, however, high-yield strategies have struggled. That's because a big dividend may simply be a result of the share price falling because the company's outlook is poor.

The risk is that the dividend is then cut, resulting in further steep share price falls.

See Tim Bennett's video tutorial: How to pick income winners: What are dividends?

Most Popular

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks
European stockmarkets

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks

Ray Dalio’s Bridgewater hedge fund is putting its money on a collapse in European stocks. It’s likely to pay off, says Matthew Lynn.
3 Jul 2022
UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022