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Dogs of the STOXX 2009 – Update

5 November 2009

Dear Fellow Investor

In May this year I wrote an article Dogs of Europe 2009 (also called dogs of the STOXX) on the highest dividend paying stocks in Europe.

Due to popular demand I am updating the list.

To recap.

I put together a Dogs of European or Dogs of the STOXX portfolio based on the American investment strategy called “Dogs of the Dow” popularised by Michael O’Higgins in his book Beating the Dow.

The strategy proposes that an investor annually select the ten Dow Jones Industrial Index stocks with the highest dividend yields. All shares are sold after one year and then reinvested in the then ten highest dividend yield shares.

The strategy has marginally outperformed the Dow Jones Industrial Index over the last nine years according to the Dogs of The Dow website a site dedicated to the strategy.

From 22 May 2009 to 2 Nov 2009 my Dogs of the STOXX portfolio returned 11% including dividends. Slightly less than the European STOXX 600 index return of 14.8%

The table below shows the 40 highest dividend yield shares in Europe and the UK in descending dividend yield order.

Similar to May 2009 telecom, utility and oil companies are well represented.

The numbers from one to ten in the “May Dog” column shows my May 2009 Dogs of the STOXX portfolio suggestions for the year. I have avoided companies that have:

  • Announced dividend cuts such as BT Group and Marks & Spencer
  • Announced substantial earning declines such as ThyssenKrupp
  • Have high payout levels which indicate that the historical dividend may be unsustainable

The only change I would suggest is that BASF be exchanged against BP PLC as management has said that BASF may not earn its cost of capital this year and the dividend may thus be at risk.

May Dog Name Price Industry Dividend yield Debt / Equity % Market Capitalisation (Millions) Dividend Payout Ratio % % from 52 week low
1 ENEL SPA 4.06 Electric-Integrated 9.6 305.1 38,131 60 43
3 DEUTSCHE TELEKOM AG-REG 9.29 Telephone-Integrated 8.4 116.5 40,517 228 19
AVIVA PLC 383.60 Life/Health Insurance 7.5 131.3 10,507 NA 140
2 FRANCE TELECOM SA 16.86 Telephone-Integrated 8.3 145.0 44,655 90 9
5 RWE AG 59.70 Electric-Integrated 7.5 116.4 33,226 76 29
6 VIVENDI 18.92 Multimedia 7.4 51.4 23,243 61 16
4 ENI SPA 16.91 Oil Comp-Integrated 6.8 46.9 67,731 53 43
SCOTTISH & SOUTHERN ENERGY 1,079.00 Electric-Integrated 6.1 181.3 9,959 541 5
BP PLC 572.30 Oil Comp-Integrated 5.9 36.4 107,347 49 43
NATIONAL GRID PLC 606.50 Electric-Transmission 5.9 674.9 14,921 94 19
9 VODAFONE GROUP PLC 134.55 Cellular Telecom 5.8 48.1 70,772 133 28
ROYAL DUTCH SHELL PLC-B SHS 1,760.00 Oil Comp-Integrated 6.1 18.3 111,516 27 34
ROYAL DUTCH SHELL PLC-A SHS 20.21 Oil Comp-Integrated 6.0 18.3 124,314 27 32
REPSOL YPF SA 18.17 Oil Comp-Integrated 4.7 41.1 22,177 47 62
BANCO SANTANDER SA 11.00 Commer Banks Non-US 4.7 751.0 89,674 54 180
MARKS & SPENCER GROUP PLC 342.50 Retail-Major Dept Store 5.2 147.0 5,409 54 76
10 E.ON AG 26.09 Electric-Integrated 5.8 119.1 52,206 205 47
TOTAL SA 40.64 Oil Comp-Integrated 5.6 49.1 95,371 51 19
CENTRICA PLC 248.30 Gas-Distribution 5.0 82.0 12,737 NA 22
BT GROUP PLC 131.30 Telephone-Integrated 5.0 9,793.7 10,178 NA 87
7 BASF SE 36.50 Chemicals-Diversified 5.4 82.6 33,524 62 82
BAE SYSTEMS PLC 314.50 Aerospace/Defense 4.8 38.4 11,133 12 7
GLAXOSMITHKLINE PLC 1,250.00 Medical-Drugs 4.8 204.1 64,859 64 27
IBERDROLA SA 6.18 Electric-Integrated 4.3 133.7 32,459 57 42
TELEFONICA SA 19.03 Telephone-Integrated 4.3 308.7 89,536 61 41
BRITISH AMERICAN TOBACCO PLC 1,943.00 Tobacco 4.6 175.1 38,790 68 31
MUENCHENER RUECKVER AG-REG 107.64 Reinsurance 5.1 33.1 21,248 71 36
SKANSKA AB-B SHS 106.00 Building-Heavy Construct 5.0 16.6 44,426 70 99
GDF SUEZ 28.51 Electric-Integrated 4.9 68.7 64,419 63 29
REED ELSEVIER PLC 462.20 Publishing-Books 4.4 0.0 5,604 91 14
8 SCHNEIDER ELECTRIC SA 71.01 Power Conv/Supply Equip 4.9 57.0 18,600 51 73
NOKIA OYJ 8.63 Wireless Equipment 4.6 31.3 32,319 4 29
TELECOM ITALIA SPA 1.08 Telephone-Integrated 4.6 163.8 19,014 47 42
PEARSON PLC 832.50 Multimedia 4.1 49.7 6,749 71 49
VINCI SA 35.63 Building-Heavy Construct 4.5 250.5 18,519 51 45
ALLIANZ SE-REG 78.04 Multi-line Insurance 4.5 110.9 35,356 40 73
SAINSBURY (J) PLC 329.90 Food-Retail 4.0 53.3 6,099 80 25
SANOFI-AVENTIS 49.75 Medical-Drugs 4.4 13.4 65,453 75 29
HSBC HOLDINGS PLC 673.70 Diversified Banking Inst 3.9 362.4 117,258 135 149
ORKLA ASA 53.20 Food-Misc/Diversified 4.2 70.2 54,739 NA 62

Source: Bloomberg 2 November 2009 See Column description and methodology at the end of this article

Disclosure

Of the suggested dog shares I have a position in Vivendi.
 

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The companies on the list are all large in mundane industries, but the yields are really attractive.

More than 8% in the current environment where I am earning less than 0.5% for a one month fixed deposit is worth a second look.

I just saw that Deutsche Telekom posted good third quarter numbers making the share especially attractive as the dividend will at worse be maintained.

On Saturday the 24th of October Germany set the clocks back to winter time. The following week at work winter really made its presence clear when I had to switch on the lights in the office at around 16:00. Its going to get darker a lot earlier as the solstice on December 21 is still some time away.

That is why I am looking forward to our trip to South Africa starting the last week in November.

I will have limited internet access the first week while staying with my father in Greyton near Cape Town. But after December 2nd everything should be back to normal.

Please excuse if my email replies take a bit longer during during that time. Around December 20th I will be back in Hamburg.

Regards

 

 

Tim du Toit