The Dogs of Bursa Malaysia

The Dogs of the Dow is an investment strategy popularized by Michael O’Higgins in 1991 which proposes that an investor annually select for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price. From Wikipedia, we have this:

The proponent of the Dogs of the Dow strategy argue that blue chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company; the stock price, in contrast, fluctuates through the business cycle. This should mean that companies with a high yield, with high dividend relative to price, are near the bottom of their business cycle and are likely to see their stock price increase faster than low yield companies. Under this model, an investor annually reinvesting in high-yield companies should out-perform the overall market. The logic behind this is that a high dividend yield suggests both that the stock is oversold and that management believes in its companies prospects and is willing to back that up by paying out a relatively high dividend. Investors are thereby hoping to benefit from both above average stock price gains as well as a relatively high quarterly dividend. Of course, several assumptions are made in this argument. The first assumption is that the dividend price reflects the company size rather than the company business model. The second is that companies have a natural, repeating cycle in which good performances are predicted by bad ones.

In a post entitled "Dogs will be Dogs" in bespokeinvest, we have the following comment on the poor performance of the Dogs of Dow '08:

All of the '08 dogs have turned out to be dogs once again, with not one gaining this year. General Motors and Citigroup have been the worst performers with declines of 85% and 76%, respectively. The ten lowest yielding stocks (opposite of the dogs) have actually averaged even bigger declines, but that is mainly because of AIG's 97% fall. The middle group of stocks in the Dow have done the best, with an average decline of 28%.

Table 1: Dogs of Dow 2008 & YTD % Change (Source: bespokeinvest)

Notwithstanding the poor track record of the Dogs of Dow '08, I would like to examine this investment strategy for the Malaysian stock market. I have tabulated below the top 30 stocks in Bursa Malaysia that are component members of the FTSE Bursa Malaysia Large 30 Index ('FBM30') & computed the Dividend Yield for each stock in order to determine the Dogs of Bursa Malaysia. The most difficult part is determining the denominator, i.e. the amount of dividend paid out by these stocks. You may use the Dividend Yield given by the financial press, but the dividend amount used may include Special Dividends that are one-off in nature, or some are fairly regular despite being called Special Dividend. Instead, I have collated the data from Bursa Malaysia & arrive at Table 2 below.


Table 2: FBM30 & Dividend Payout (incl. Special Dividend, Capital Repayment, Dividend-in-Specie)

In Table 2, you will see the dividend paid by each stocks for 2 financial years. A few pointers here:
1. If the full data for the dividend payout for FY2008 is available, you will see the dividend data for FY2008 & FY2007; otherwise you will see the data for FY2007 & FY2006.
2. If the company paid out dividend twice a year, I will present it as 2D (then followed by the amount in sen). For companies that paid out dividend once a year, I have denoted this as FFD.
3. If there is a Special Dividend, I will denote it as "Sp". Capital Repayment is denoted as "CR", while Dividend in Specie (such as Treasury Share distribution) is denoted as "DiS". I will include Special Dividend as dividend if there is a repeat of such payout in the earlier year. Capital Repayment is not dividend (of course), but its presence is an indication of the company's intention to achieve a certain level of dividend payout. So, if I see a Special Dividend for FY2008 & not in FY2007, but instead there was a Capital Repayment of similar amount in FY2007, then I would assume that Special Dividend will be a regular feature for that company. I have also valued Dividend in Specie & included it into the amount of dividend paid out, if it is a regular event.
4. The dividend for the most recent financial year (either FY2008 or FY2007) will be used to compute the dividend yield. There is no need to estimate the dividend amount for the current year for this study (and, no attempt has been made).

Based on the earlier table, we can tabulate Table 3 where the stocks are ranked according to their Dividend Yield.


Table 3: Dogs of Bursa Malaysia 2009

While the Dogs of Dow '08 didn't work out well this year, there are periods that this strategy has been fairly successful. Investors may like to know that the Dogs of Bursa Malaysia for 2009 are Digi.com, Maybank, Public Bank, YTLPower, KLKepong, Sime Darby, Berjaya Sport Toto, BAT, Tanjong & Petronas Dagang.