Dogs of EuropeWith most of the 2008 year end reporting behind us I compiled a list of the Dogs of Europe – European high dividend yield stocks to identify attractive market sectors and possible high yield investments.

I also put together a European Dogs 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.

The following table shows the results of the US Dogs of the Dow strategy:

Year Dogs of the Dow Dow Jones Industrial Average
2000 6.40% -4.70%
2001 -4.90% -5.40%
2002 -8.90% -15.00%
2003 28.70% 28.30%
2004 4.40% 5.30%
2005 -5.10% 1.70%
2006 30.30% 19.10%
2007 -1.44% 6.43%
2008 -41.62% -33.80%
Average 0.87% 0.21%

Below is the table of the highest dividend yield shares in Europe. Telecom, utility and oil companies are particularly well represented.

The numbers from one to ten in the “Dog” column shows my Dogs of Europe 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

 

Dog Company Name Price Industry Dividend yield Debt / Equity Market Capitalisation (Millions) Dividend Payout Ratio % % from 52-week low
1 ENEL SPA 4.26 Electric-Integrated 11.5 305.1 26,370 60 32
AVIVA PLC 345.75 Life/Health Insurance 9.5 131.3 9,470 N/A 116
2 FRANCE TELECOM SA 16.84 Telephone-Integrated 9.5 145.0 44,033 90 6
3 DEUTSCHE TELEKOM AG-REG 8.36 Telephone-Integrated 9.3 116.5 36,461 228 7
4 ENI SPA 16.65 Oil Comp-Integrated 7.8 46.9 66,689 53 41
5 RWE AG 59.08 Electric-Integrated 7.6 116.4 32,904 76 28
THYSSENKRUPP AG 17.24 Steel-Producers 7.5 40.1 8,870 27 47
BP PLC 506.00 Oil Comp-Integrated 7.6 35.8 94,813 49 37
6 VIVENDI 18.65 Multimedia 7.5 51.4 21,833 61 14
BT GROUP PLC 88.70 Telephone-Integrated 7.3 9,793.7 6,870 71 26
DEUTSCHE LUFTHANSA-REG 9.49 Airlines 7.4 53.0 4,346 54 23
BANCO SANTANDER SA 7.29 Commer Banks Non-US 7.1 751.1 59,454 54 86
ROYAL DUTCH SHELL PLC-A SHS 18.57 Oil Comp-Integrated 6.9 18.3 115,911 38 22
7 BASF SE 29.03 Chemicals-Diversified 6.7 82.6 26,663 62 63
8 SCHNEIDER ELECTRIC SA 55.05 Power Conv/Supply Equip 6.3 57.0 13,621 51 42
9 VODAFONE GROUP PLC 121.70 Cellular Telecom 6.4 34.8 63,876 60 26
DEUTSCHE POST AG-REG 9.57 Transport-Services 6.3 52.4 11,570 N/A 45
SKANSKA AB-B SHS 85.50 Building-Heavy Construct 6.1 16.6 35,834 70 61
10 E.ON AG 24.52 Electric-Integrated 6.1 119.1 46,711 205 38

 

Disclosure

I do not have a position in any of the selected Dogs of Europe companies

Table column description

Dog: My selection for the Dogs of Europe portfolio for 2009.
Price: Share price on home exchange as at 19 May 2009
Industry: Industry the company operates in
Dividend Yield: Yield calculated using the most recently announced net dividend divided by the current market price
Debt / Equity: Total debt to total shareholders equity. I am very careful of companies with high debt levels.
Market capitalisation: Market value of the company in its home currency in millions
Dividend payout ratio: Cash dividend / Net income before extraordinary income after minority interests and preference dividends expressed as a percent. This ratio indicates how sustainable the dividend is. A payout ratio of 100 or higher is most likely not sustainable.
% from 52-week low: This indicates the current share price movement from the 52-week low price. A number 10% shows that the price is currently 10% above the 52-week low price. I wanted to see how the share has moved in the current market rally. As mentioned I am not convinced of the rally and am careful of shares that have advanced substantially

Methodology:

I compiled a list of companies from the following indices:

  • The 50 highest market capitalisation companies in the United Kingdom FTSE 100 and European Euro Stoxx 600
  • German DAX 30 index companies
  • European Euro Stoxx 50 index companies
  • European Stoxx 50 index companies

From the combined list I eliminated duplicate names and sorted the companies from highest to lowest on historical dividend yield.

From this list I selected the 70 companies with the highest dividend yields