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

June’s NS&I Premium Bond prize draw - are you this month’s millionaire?
Savings

June’s NS&I Premium Bond prize draw - are you this month’s millionaire?

Two fortunate NS&I Premium Bond winners are now millionaires. Find out here if you’re one of them.
1 Jun 2023
The best one-year fixed savings accounts - June 2023
Savings

The best one-year fixed savings accounts - June 2023

You can now earn 5% on 1 year fixed savings accounts - the best rate seen in 14 years. We have all the latest rates available now.
2 Jun 2023
The top healthcare funds to buy
Investments

The top healthcare funds to buy

Increasingly rapid progress in drugs and healthcare technology makes these trusts top tips, says Max King.
1 Jun 2023