What a year it has been. From rising geopolitical trade tensions between USA and China to an unprecedented pandemic that spread over multiple countries and brought the global economy to its knees, it has been one unpredictable wild ride. Both the Australian and US markets traded in volatile conditions with many asset classes delivering poor results. The Dow Jones Industrial Index dropped by -38% in March as panic selling swept through. Following this a recovery ensued, brought about by bargain hunters and the fear of missing out, but even that is at risk of a second wave outbreak. Even with this recovery, the Dow is still a good 10-15% down on the year.The ASX 200 Index closed the financial year down -10.91% making it the worst performance since 2011-12. Much of the year’s losses were due to the Coronavirus outbreak and the subsequent sell down and shut down of global economies. Tech and healthcare stocks proving the best place to hide during the market’s Covid-19 turmoil.
In this piece, we are going to look at the Dogs of the ASX 200 for the 2021 financial year. Most investors try and avoid volatility and maximise yield. One investment technique that takes this into consideration is to buy the Dogs of the ASX 200. A stock picking strategy which picks the highest dividend paying stocks. Made popular by Michael B. O’Higgins in 1991 it proposes that an investor select ten ASX 200 stocks whose dividend is the highest. The theory is that these stocks have the potential for substantial share price increase plus relatively high dividend payouts. Here are the steps to invest using this strategy:
- Look at the stocks in the ASX 200 Index at the beginning of the year.
- Look up the dividend yields for each stock and then rank them in order from highest yield to lowest.
- The top 10 yielding dividend yielding stocks in the ASX 200 become the Dogs of the ASX 200 for the coming year.
- Invest equal amounts in all 10 stocks and hold for the remainder of the year.
Here are the Dogs of the ASX 200 for 2021:
|ZEL||Z Energy Ltd||$2.54||17.48%||17.48%|
|AIZ||Air New Zealand Ltd||$1.215||17.14%||17.14%|
|YAL||Yancoal Australia Ltd||$2.08||15.17%||15.17%|
|FLT||Flight Centre Travel Group Ltd||$11.32||12.19%||17.42%|
|NHC||New Hope Corporation Ltd||$1.36||11.03%||15.75%|
|BOQ||Bank of Queensland Ltd||$6.39||10.17%||14.53%|
|WHC||Whitehaven Coal Ltd||$1.45||10.00%||10.84%|
|WBC||Westpac Banking Corporation||$17.99||9.67%||13.82%|
Over the years quite a few Dog stocks end up posting stellar returns. The reason for this; is that often you’ll find that a company that pays a decent dividend takes quite a big hit and the share price falls. The stock’s yield then rises and so makes the Dogs of the ASX 200 list.
The table above shows the top 10 highest yielding stocks in the ASX 200 using today’s share prices. Over the next twelve months it will be interesting to see which stocks perform and which ones fall from grace. Just looking at these top ten stocks you can quite easily pick out the key themes:
- Oil stocks battered by the 35% fall in the oil price due to COVID-19.
- Airlines hammered by the shutdown of global travel.
- Coal stocks hit by a drop in thermal coal prices.
- Shopping Centre REITs sold off due to COVID-19 restrictions as shoppers were forced to stay home under the lockdown laws.
- Banks were hit hard after borrowers put off home loan repayments for six months due to the coronavirus.
Trying to pick winners in this environment is naturally a lot harder because there are so many unpredictable market sensitive variables. However, with the Dogs of the ASX 200 for 2021, almost all the above key themes are a direct result of COVID-19. Whilst we are still a while off from a vaccine, the race is on. China is forging ahead to develop a vaccine to help control the COVID-19 pandemic whilst many other countries, including the United States and Australia are following closely behind. So, it’s suffice to say, once a vaccine is announced and lockdown laws relaxed, the Dogs of the ASX 200 will start to shine and reverse much of the COVID-19 losses.