Some of the stock screens that appear in these pages are complicated mash-ups of fundamental principles and metrics. Others are nuanced attempts to adapt recent academic research on sources of market alpha into oven-ready ideas.
Our Dogs of the FTSE screen is neither. Instead, it is both easy to follow and a replica of the ‘Dogs of the Dow’ method first introduced by Michael O’Higgins in his popular 1991 book Beating the Dow.
The method is so simple, in fact, that it can be outlined in one line. Once a year, our screen ranks the FTSE 100 constituents by their trailing dividend yields and selects the 20 highest. That‘s it. O’Higgins’ original version, which focused on the Dow Jones Industrial Average (DJIA), applied the same principle to the 10 highest yielders of the Dow’s 30 constituents. Both UK and US versions keep things going by replacing stocks that fall off the list each year with those that are newly promoted.