With 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
