United kingdom Daily news: MIDAS: Yield shares are suffering in the economic storm

MIDAS: Yield shares are suffering in the economic storm

By Joanne Hart

PUBLISHED: 15:48 EST, 30 June 2012 | UPDATED: 08:36 EST, 1 July 2012

The past three months have been extremely disappointing for financial markets. And the climate has proved unsettling for the Dogs of the Footsie, our experimental portfolio that tracks the top ten highest-yielding stocks in the FTSE 100 index.

Having performed spectacularly from 2001 to 2007 and dreadfully in the following five years, Midas relaunched the Dogs in March, hoping that the portfolio would flourish as the economy recovered. Back then, it seemed that conditions were improving. But political mishaps at home and the never-ending dramas on the Continent have made markets skittish.

Some Dogs have been hit hard by recent events. In March, our ten Dogs were general insurers Admiral Group, Aviva and RSA, life assurer Resolution, drugs giant AstraZeneca, defence firm BAE Systems, hedge fund manager Man Group, mobile phone business Vodafone and utilities National Grid and SSE (formerly Scottish Southern Energy).

Crash: Aviva's shares more than halved while Andrew Moss was boss

The worst performer by far was Man, whose shares have halved in value during the past three months. In July 2007, they peaked at 724p, this March they were 145p and today they are just 76p. In fact, Man has been such a poor performer since the financial crisis that it was demoted from the FTSE 100 last month.

The other dirty Dogs are Resolution and Aviva, whose shares have lost nearly a third of their value in the past quarter. Both have had a torrid few months.

Avivaâ€™s chief executive, Andrew Moss, resigned after frustrated shareholders voted against his Â£2.69â€‰million pay package. The shares were 762p when Moss took the helm in July 2007. By the time he left, on May 8, they were 302p. Unfortunately, they have fallen even further since, to 273p, reflecting concerns about the groupâ€™s strategy in Britain and its exposure to Europe.

Resolution has not parted company with its boss, but investors have lost faith in the business. The firm, which buys life insurance businesses and tries to make them more efficient, was supposed to hand out a special dividend to investors but has failed to do so. They are disillusioned and the stock has tumbled.

But three of our Dogs have ambled forward. National Grid shares are up just over one per cent since March as the energy distributor is a regular safe haven during uncertain times. Its business is less affected than most by economic headwinds and it has a history of generous dividends.

SSE also rose marginally after strong annual results were unveiled in May and it pledged to support above-inflation rises in dividend payments.

Vodafone gained ground, too, as investors responded positively to the phone groupâ€™s acquisition of struggling telecoms business Cable Wireless Worldwide.

Sadly, the positive performances from Grid, SSE and Vodafone were not enough to make up for the losses incurred at Man, Aviva and Resolution, so after just one quarter, our Dogs portfolio has fallen in value.

In March we put a virtual Â£1,000 into each of our ten shares. Today that Â£10,000 investment is worth Â£8,968. The FTSE 100 has had a rough quarter, too, but if we had put Â£10,000 into the index in March, it would be worth Â£9,400, ahead of our Dogs.

As is customary in this portfolio, we remove stocks if they have fallen out of the FTSE 100 or if other shares now offer a higher yield. Man Group drops out therefore and so does National Grid.

Manâ€™s ousting is a blessing as the shares have dragged down the Dogs for years. But National Grid has been a force for good in the portfolio, so it will be missed. In its place come Standard Life, an old favourite of the Dogs, and Icap, which acts as a broker in markets such as bonds andÂ commodities.

Icap has suffered as activity has declined in its markets and the shares have fallen from 431p to 338p over the past three months.

Brokers still expect it to deliver a dividend of 22.7p for the year to March 2013 â€" so today the shares are yielding 6.7 per cent.

Three months ago we hoped that 2012 would herald a new dawn for our Dogs. They have not started well but there is potential for improvement.

Meanwhile, the portfolioâ€™s average yield is 7.4 per cent, a consolation in tough times.

How we pick our ten Footsie tips

The Midas Dogs of the Footsie portfolio tracks the performance of the ten highest-yielding stocks in the FTSE 100 index. It looks at prospective yields, which are calculated with reference to the next forecast annual dividend.

Midas reassesses the portfolio every quarter, ditching stocks that are no longer top yielders and replacing them with thoseÂ that are, to the same value.

Our calculations are based purely on the share price, so we do not reinvest the dividends received.

The idea has its roots in a similar experiment conducted in America on high-yielding stocks in the Dow Jones Industrial Average index and called The Dogs of the Dow.