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Phillip: Dogs Of STI Offer Superior Returns!
Aspire, Personal Finance | 08 June 2015
By: Lim Si Jie
Articles (169) Profile

Dogs of Dow (DoD) is a stock picking strategy that selects the ten highest dividend paying stocks with the worst performing returns in the Dow Jones Industrial Average (DJIA). Phillip Securities explains that the contrarian way of investing using the DoD strategy can prove to be worthwhile just because of the dividend yields.

Dogs of STI

Phillip points out that the “Dogs of Dow (DoD)” strategy is able to “pick out out-of-favor cyclical stocks with superior dividend income.” According to Phillip, Dogs of Dow is a strategy that is “resistant to draw-downs,” an important feature that might interest retail investors.

Apparently, this methodology will work in the Singapore stock market given the similar dynamics of Straits Times Index (STI) and DJIA. In fact, it might even work better in the Singapore market, considering that the STI has a better cyclical bounce as compared to DJIA.

Dogs of STI for 2014

The list highlights the ten worst performing stocks on the STI with the highest dividend yield for 2014 that is picked using the Dogs of STI strategy. The overall return for the Dogs of STI fell by 6.9 percent in 2014.

Phillip categorised the Dogs of STI into two main categories: value stocks and investment trusts.

Source: PSR

Dogs of STI: Value Stocks

Phillip picks three value stocks among the Dogs of STI: Noble Group and Keppel Corp.

In view of the recent short sell attack by Iceberg Research, Noble’s share price fell to about $0.85. The fall in share price means a major rise in dividend yield, which is favourable for the Dogs of STI strategy.

This round of short sell attacks allows long term retail investors to accumulate Noble’s stock. Furthermore, some of the commodities stocks are hitting the bottom, and will thus probably perform better once prices rebound.

Keppel Corp recently posted a 6.4 per cent rise in net profit for its first quarter. Higher earnings from investments and property offset weakness in its offshore and marine arm.

Keppel Corp has said that it will shift its focus from its offshore business to areas beyond drilling as rig orders dry up.

As oil prices are expected to rebound after its recent low $45.08, Keppel Corp’s share prices might not stay low as well.

Source: TradingView

Dogs of STI: Investment Trust

One of the unique features of the STI is the number of investment trusts in the index. Investment trusts are regulated to return its profits as dividends to its shareholders. Among the three trusts in the ten Dogs of STI, Hutchison Port Holdings Trust and CapitaMall Trust have consistently outperformed the STI for ten consecutive years.

Contrarian Strategy

To quote the Oracle of Omaha, “be fearful when others are greedy, and greedy when others are fearful.” Dogs of STI is essentially a contrarian strategy that capitalises on extreme sentiments from the market.

It allows long term investors to pick up high dividend paying stocks at low prices when they are battered by the market.

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

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