Divi trend hobbles Dogs of the Footsie

Dividend payouts by British companies in the first half of the year were down by 9% on the corresponding period of 2008, creating a less than propitious environment for advocates of the 'Dogs of the Footsie', the mechanical investment strategy which focuses on high-yielding blue-chips. Figures from Capita Registrars show that 70 fewer companies paid a dividend in the first half of 2009 than in the correpsonding period of 2008, among them some big names in the banking sector, while several other blue-chips, such as insurers Legal & General, Aviva and Old Mutual, have cut their pay-outs this year.The 'Dogs of the Footsie' system is based on the 'Dogs of the Dow' strategy popularised by investment guru Michael O'Higgins, a system that produced index-beating results from the mid-seventies to the mid-nineties. O'Higgins's back-testing indicated the system would have returned 16.6% annually over that period compared to a return of around 10% for the Dow-Jones Industrial Average. Unfortunately, since the mid-nineties, the system has beaten the Dow only three times in thirteen years. However, according to Digital Look's take on the 'Dogs of the Footsie' system, in three of the last four years (as at 19 August) it would have been profitable to have adopted the strategy ... the duff year being the current one.The 'Dogs of the Footsie - revisited' screener on Digital Look's Research Plus considers the following companies to be so-called Footsie dogs: Aviva, Barclays, BT, Glaxo, HSBC, Legal & General, Lloyds Banking, National Grid, Old Mutual, Pearson, Royal Bank of Scotland, Royal Dutch Shell, Scottish & Southern Energy, Unilever, Vodafone and Wolseley.These companies are yielding anywhere between zero per cent (RBS) and 10.98% (Lloyds), the only problem being that these yields are based on historical not projected dividend payments. As alluded to above, RBS and Lloyds have binned their divis while the insurers in that list have cut back their pay outs. Of the 17 stocks (Shell has two classes of share) in the Dogs basket, 4 have risen over the last year and 13 of them have fallen. Assuming an equal investment in all 17 shares, and excluding dividend income, the portfolio would have lost 19.1% over the last year, some 6.8% worse than the market. Capita Registrars is predicting that dividend payments by UK plc will be 13% lower in 2009 than they were in 2008, suggesting it might be a good idea to wait for the dividend payment trend to reverse before you give the dogs of the Footsie house room.