Hi all! and "Dogs of the Dow"

[pepperoni]

Hi all .. this is my first post and Im very new to investing in shares.

I have a friend that makes a fortune off shares! Every share he buys goes through the roof. I wish I had his knack :swear: .

Anyway, recently he told me about a system called dogs of the dow (basically buying good shares with the highest dividend yields at the end of each financial year).

Would this work on the ASX 200?

What about a similar approach based on buying shares that have had the greatest buy backs each year?
(eg http://moneycentral.msn.com/content/P133914.asp)

 

[Realist]

have a friend that makes a fortune off shares! Every share he buys goes through the roof.

Is that what he tells you?

Sounds unlikely to me.

Anyway, recently he told me about a system called dogs of the dow (basically buying good shares with the highest dividend yeilds at the end of each financial year).

Not that silly. First of all I like shares that pay dividends.

Secondly if a company has a high dividend yield it most likely means they pay a highish dividend AND the price has recently dropped. eg say they pay a $7 dividend when the share price is $100 in March. Then the share price drops to $50 in December, the dividend is 14% at year end. Which is extremely high.


The real question is "what is a good share, or good company?" - "good shares" probably don't have very high dividend yields, because they will pay a dividend and the share price will rise - dilluting the dividend percentage. Say $7 out of $100 in March, then if the share price is $200 in December the dividend is only 3.5% year end.

So to buy a "good share" with a high dividend is somewhat difficult...

 

[lbaz9]

This is pretty popular theory and has worked well over the years on the ASX as well as the NYSX. This is a common description of the Dogs of the Dow:

"According to The Dogs of the Dow investment strategy popularized by Michael O’Higgins in 1991, an investor should annually select for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price.

Proponent of the Dogs of the Dow stategy argue that blue chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company; the stock price, in contrast, fluctuates through the business cycle. This should mean that companies with a high yield, with high dividend relative to price, are near the bottom of their business cycle and are likely to see their stock price increase faster than low yield companies. Under this model, an investor annually reinvesting in high-yield companies should out-perform the overall market. Of course, several assumptions are made in this argument, first, that the dividend price reflects the company size rather than the company business model and second, that companies have a natural, repeating cycle in which good performances are predicted by bad ones."

Alan Kohler always publishes his dog at the start of the year. At the start of 2006 the best yielding stocks in the ASX were


MGR, TLS, TEL, BSL, TCL, TAH, NAB, QAN, IAG, WES

So you could track your performance from teh start of the year with mixed performances.

 

[twojacks28]

many companies that offer a buy back actully go down to the price which they are offering investors to buy back in at. say the share price is $10 and the buy back was $8 then the day after the buy back many companies will go back to the $8 mark. one company which i have seen recently that doesnt go down after a buy back is ABC learning centres

 

[suhm]

twojacks do you mean a rights offer? Where they raise equity capital, a buyback reduces the total amount of shares on offer and the sp usually increases when they are announced as it inflates eps over the short term.

 

[retroaugogo]

I have the Dogs of the ASX on watchlist this year.

So far down 5.22 %

Dogs Of the Dow

Up 1.54%