This week in the Switzer Report, Peter Switzer explained how the ‘Dogs of the Dow’ investment strategy and the Switzer Dividend Growth Fund could be good options for dividend hungry investors in the current macro-economic environment.
“You might like the idea of this DOD strategy but as I read this, it made me think about the underlying strategy of my own Switzer Dividend Growth Fund. This is not meant to shoot the lights out, though it had a great year in 2019, but was still beaten overall by the S&P/ASX 200 Index.
Over the year, which was great for dividends due to Bill Shorten, his franking credits policy and the company reaction, SWTZ had a yield of 8.05% and 11.49%, if you include franking. Total return after fees for the twelve months to the end of January was 18.87%, which was pretty good for a dividend-chaser but it was an exceptional year.
That said, I never wanted it to be primarily a total return market beater but simply a reliable deliverer of dividend income that should give a bit of capital gain. This is becoming harder, as a lot of dividend payers have become expensive and this drives the percentage yield down.
That said, having a targeted goal of making a 4% net return from dividends, with capital gain on top and franking credits, is a pretty sensible way to go for lots of investors who don’t want to roll the dice on higher risk shares that could net great capital gains but could fall like a stone in a crash. This would be made worse if they were bad dividend payers.
Taking the ASX 200 top 30 stocks (like the 30 stocks in the Dow) and relying on some of the best dividend-payers, especially when they have had a bad year, doesn’t look like a dumb strategy for those of us who are trying to harvest dividends.
And companies such as Westpac, ANZ and NAB look like local DOD stocks. Telstra was in 2018 but it has a ripper of a 2019 and probably can’t be a dog stock this year.
FNArena thinks Westpac has 5.6% upside, ANZ 2.9% and NAB 5.3%. NAB’s forecasted dividend is 6.3% before franking, ANZ 6.1% and Westpac 6.3%, which makes them look attractive to cautious divided players, even if they were ‘dogs’ in 2019!
No one knows when this bull market will fall over. Before the Coronavirus, I was very confident that 2020 would be good for stocks. Right now, my jury is out. I’m not a virus expert, so I’m losing a bit of confidence, while remaining fully invested. That said, over time, I will be boosting my exposure to good dividend payers because if I miss the call on when the bull market is over, I want to know my stocks will be good dividend deliverers.”
You can find more information on the Switzer Dividend Growth Fund (Quoted Managed Fund) (ASX:SWTZ) here.