2020’s Dogs of the Footsie: how did they perform?

Hundreds of UK companies cut dividend payouts to shareholders, but how did the 10 highest-yielding FTSE 100 shares fare?

The year 2020 was one of pain for the FTSE 100 index of blue-chip companies. Overall, the index lost 12.1% in share price terms as coronavirus forced the UK into successive lockdowns, decimating the economy in the process.

Worse still, hundreds of UK companies scut dividend payouts to shareholders, in an effort to conserve cash to see them through lockdown or to adapt their business to the new order. In the course of 2020, research by ETF provider GraniteShares points out that more than 500 companies listed on the London Stock Exchange reduced, postponed or cancelled payouts; 52 of those were FTSE 100 stocks.

Some industries and sectors were able to capitalise on our largely housebound existence, of course. But on the whole they were not the dividend-paying blue-chip giants – dominated by banks, oil companies, miners, consumer staples – but smaller tech-focused businesses.

So, it is perhaps surprising that last year’s Dogs of the Footsie – the 10 highest-yielding companies in the FTSE 100 as at 31 January 2020 – have not done worse in such a challenging year.

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The Dogs strategy is a simple one: identify the 10 top-yielding companies in the index (we use SharePad), invest equal sums into each stock, and hold them all for a year. At that point you repeat the process and reinvest your cash across the 10 new highest-yielders.

The rationale is that yields on these businesses are high because share prices are low – which in turn often reflects the fact that a company (or its sector) is excessively or temporarily unloved by the market. When it returns to favour, the Dogs argument goes, investors should enjoy a significant share price bounce; and in the meantime they are compensated for waiting by a meaty yield.

As the table shows, the Dogs’ average share price over the year to 31 January 2021 fell by 13.2% - just a percentage point more than that of the FTSE 100 as a whole, while average total return (taking account of dividends), a loss of 9.3%, is almost in line with the wider index’s decline of 9.2%.

Tale of the tape: how our Dogs fared in 2020-2021

SharePad. * 31 January 2020 to 31 January 2021. Companies ranked in order of dividend yield at start of February 2020.

Only three of the 10 Dogs saw their share price rise over that period: miner and steel producer EVRAZ (LSE:EVR) stormed ahead with a 42% rise, while fellow miner Glencore (LSE:GLEN)e was up 11%, and investment company Standard Life Aberdeen (LSE:SLA) scraped marginally into positive territory. The rest suffered double-digit losses of up to 39%.

That pain was compounded (and exacerbated) by dividend cuts or suspensions for all but Evraz and SLA, although two –housebuilder Persimmon (LSE:PSN) and insurance company Aviva (LSE:AV.)– resumed payouts in August.

Worst hit was British Gas owner Centrica (LSE:CNA), whose shares, already on a downward trajectory over recent years, lost a further 39% in our 12-month period. Centrica was relegated to the FTSE 250 in June, after its market value fell below the FTSE 100 threshold. Its dividend payments were cancelled in April 2020.

HSBC (LSE:HSBA), in line with other major banks, also announced in April that it would scrap shareholder payments. The banks were under instruction from the Bank of England, which was concerned that they should be well-placed to lend to businesses impacted by the pandemic. Glencore had already cancelled its payouts in March despite relative share price strength, on the back of surging net debt and concerns about near-term prospects.

In May, telecoms giant BT (LSE:BT.A) also pulled its dividend for 2019-20 and 2020-21 for the first time since privatisation in 1984, in an attempt to manage the coronavirus hit while continuing to upgrade its network.

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Both energy firm Royal Dutch Shell (LSE:RDSB) and tobacco business Imperial Brands (LSE:IMB) trimmed their payouts. Shell cut by 70% – its first reduction in dividends since the Second World War –as the oil price collapsed. Imperial Brands reduced payments to shareholders by a third, as the reduction in travel and spending impacted on sales.

The effect of multiple dividend reductions has clearly hit our kennel hard: their average yield amounts to less than 4% for 2020, while for the mainstream index it stands at just under 3%.

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Yet there’s a very different longer-term story. Money Observer magazine, which closed at the end of July 2020, first began tracking the Dogs in 2001. Over this period the average annual share price return for the Dogs of the Footsie is 4.9%, comfortably outpacing the main index’s 1.3%. In terms of total returns (with dividends reinvested) the gap is much wider. The Dogs have averaged 11.2% per year – more than double the FTSE 100’s 5.2%.

The question now is whether it is realistic for mutt-lovers to expect blue-chip dividends to return to their former lofty levels any time soon.