The Dogs of the S & P CNX Nifty

The Dogs of the Dow strategy is a well-known strategy that is purported to outperform the market. You can read about how the strategy has performed here. However recent outperformance has been patchy.

The strategy can be applied to any large cap index. I have always been interested about how this strategy would do in India. You can apply it to the Sensex, Nifty, Largest 100 market-cap of the NSE 500, etc.

Here we shall see how the Dogs of the Nifty has performed.

The principles of the Dogs of the Nifty strategy is as follows:

1. Rank all the S&P CNX Nifty stocks by dividend yield from 1 to 50. 1=highest dividend yield, 50=lowest dividend yield.

2. For those who do not know what dividend yield is, it can be calculated by the following formula: Dividend yield=Annual dividend/price x 100

3. Where to find the annual dividend: Go to www.moneycontrol.com and you can find the information to calculate the annual dividend. For example, to calculate the annual dividend of State Bank of India go here

Annual dividend= Div%/100 x Face value= 300/100 x 10=30

Dividend yield= 30/1888.75 x100=1.59%

Lots of websites including moneycontrol also give the dividend yield.

You can also use a stock screener like this to automatically screen for stocks with the highest dividend yield.

4. Once you have ranked the stocks by dividend yield, make note of the top 10 stocks with the highest dividend yield.

5. Buy equal amounts of all the 10 stocks.

6. Keep them for a year.

7. Repeat the process. Sell those stocks which are not in the top 10 by dividend yield.

The performance data for such a strategy is shown below:

1998-2007: Data taken from an Outlook Profit article called ‘Count on the margin of safety’ by N Mahalakshmi.

2008 to 2011: Data is mine. I have also included the data so that you can check it for yourself.

2008: -36.13%

2009: 140%

2010: 20.4%

2011: -11.19%

2008 Dogs performance

 

2009 Dogs performance

 

2010 Dogs performance

2011 Dogs performance

 

Let us now see what the annual return is:

Go here and enter the annual returns.

You get a true annualised return of 32.32% every year from 1998 and 36.86% from 1999

The Nifty gave a annualised return in the same period of from 1999 to date of 13.73% year

100 rupees becomes 5910 rupees in 13 years

100 rupees becomes 595 rupees in 13 years

This is a 10 fold difference

Now let us also see the returns since 2008:

Go here and enter the annual returns.

You get a true annual return of 13.15%

The Nifty has given an annualised return in the same period of  -6.73%

So although this strategy has been patchy in the US, it has worked very well in India and is worth considering for investors.

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