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The top 5 dividend paying ASX stocks

What is dividend yield?

Dividends are the method by which company earnings are distributed to shareholders.

A dividend yield is the percentage of your invested capital that is returned to you each year. A high dividend yield means that you are earning more for each dollar of invested capital.

"Dividend yields on the ASX are currently very high from a historical perspective."

There are two reasons for an increasing dividend yield.

The first is simply that the company has increased the value of dividend payments. This could be because the company is earning more money or because it decides to pay out a larger percentage of its earnings.

The second reason the dividend yield might rise is if the share price falls. This may mean that the stock is cheap, or it could also mean that the company is in serious trouble from which it won't recover.

In Australia, dividends can come with the benefit of attached franking credits. This means that tax has already been paid on the dividends at the company tax rate of 30%. This can mean that the full (gross) value of the dividends is higher than the actual dividend payment by the amount of these franking credits.

Dogs of the DOW

In 1990 Michael O'Higgins published a book titled Beating the Dow: A High-Return, Low-Risk Method for Investing in the Dow Jones Industrial Stocks with as Little as $5,000.

The book describes an investing strategy, called the Dogs of the DOW, which involves buying the top ten dividend-yielding stocks on the Dow Jones Industrial Average index. The stocks are generally held for a year. Then the portfolio is updated to the latest list of top dividend-yielding stocks.

The idea of the strategy is that blue-chip companies generally pay a very consistent level of dividends and therefore a high dividend yield.

The Dogs of the Dow website publishes data about the strategy as well as historical performance information. The following table shows a summary of return data for the past 15 years. 

Dogs of the dow

These results show that over the last 15 years the strategy has outperformed both the Dow Jones and S&P 500 by a couple of percentage points. The question is, can this US-based strategy be adapted to work on the ASX?

Rivkin's Blue Chip Strategy

Rivkin's Blue Chip strategy employs a variant of the Dogs of the DOW that operates on the ASX 50. Our strategy has outperformed the market in most years since it's inception in 2009.

As with any investing strategy, it should not be expected to outperform the market in every single year. Rather it should outperform over the long term.
The following chart shows the compounded annual returns for our strategy over the past six years.*

Rivkin's Blue Chip Strategy performance*

As of February 2019
*Past performance is no guide to future performance

One feature of the Rivkin strategy is that it aims to maintain the ideal portfolio while reducing trading by rebalancing on an 'as needed' basis.

Current Dividend Yielding Stocks

We have compiled the list of the current top 5* dividend-yielding stocks on the ASX 50, the largest 50 stocks on the ASX. The index takes into account factors other than just the market capitalisation of the company, such as trading liquidity. Broadly speaking, however, the index can be thought of as the 50 largest companies. The table below shows the current list.

*The list of top 5 dividend-yielding stocks can change frequently depending on movement in share prices and therefore the list calculated on any given day can change shortly after.