Should You Buy The Dogs Of The FTSE For 2015? BP plc, WM Morrison Supermarkets PLC, Persimmon plc, BHP Billiton plc & Centrica PLC

BP plc (LON:BP), WM Morrison Supermarkets PLC (LON:MRW), Persimmon plc (LON:PSN), BHP Billiton plc (LON:BLT) and Centrica PLC (LON:CNA) could outperform the market in 2015.

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Fans of the Dogs of the Dow strategy believe they can beat the market by buying equal amounts of the 10 highest-yield stocks in the US Dow Jones Industrial Average index at the start of each year, holding them for one year, and then selling and repeating the process.

The Dogs of the Dow have beaten the Dow for two of the last three years, and we can apply the same strategy to the FTSE 100.

In this article, I’ll take a look at the five of 2015’s ‘FTSE Dogs’, and I’ll complete the list in a later article.

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When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if AstraZeneca made the list?

See the 6 stocks

Company

2015 prospective yield

BP (LSE: BP)

7.0%

Wm. Morrison Supermarkets (LSE: MRW)

6.2%

Persimmon (LSE: PSN)

6.3%

BHP Billiton (LSE: BLT)

6.4%

Centrica (LSE: CNA)

6.8%

BP

Down by around 25% in 2014, BP’s sky-high yield suggests to me that either BP’s dividend will be cut, or its share price will rise.

However, it’s worth noting that BP could cut next year’s dividend by a third and still offer a yield above the FTSE 100 average.

Morrisons

Morrisons was the first supermarket to admit that it had serious problems, and appears to be making good progress in dealing with them.

Unlike its peers, Morrisons has not yet cut its dividend, but consensus forecasts indicate the market is expecting a 15% cut to 10.6p in 2015, giving a prospective yield of 6.2%.

Persimmon

With a forecast P/E of 10.8 and a prospective yield of 6.3%, Persimmon may look cheap, but I’m not convinced.

The firm’s share price has risen by 250% over the last five years, and is now at 2006/7 peak levels, thanks to the strong recovery we’ve seen in the housing market. The question is how long can this continue?

BHP Billiton

BHP currently trades on a forecast P/E of less than 10 and at less than ten times ten-year average earnings — a key value indicator.

The miner’s prospective yield of 6.4% is backed by a strong balance sheet and average dividend growth of 6.8% per year since 2010.

Shareholders will also receive a capital return in 2015, when the miner spins off non-core assets into a new firm.

Centrica

Centrica’s dividend has risen by an average of 5.8% per year since 2009, but mild weather means gas consumption fell by 21% during the first ten months of 2014.

Centrica’s earnings per share are expected to follow and fall by around 25% to 19.8p this year, leaving the firm’s 17p dividend barely covered by earnings, but offering a Dog-worthy 6.8% prospective yield.

What if these dividends are cut?

The point of the Dogs strategy is to buy stocks based only on their yield — to resist the temptation to analyse and pick stocks.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares in BHP Billiton and Wm Morrison Supermarkets. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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