The strategy turned in a return of 35 per cent compared to the 41 per cent recorded by CNX Midcap 200. The average mutual fund gained about 28 per cent while Sensex and Nifty gained less than 15 per cent. The BSE-100 index itself gained only 16.4 per cent.

Investing in dividend dogs of BSE-100 is similar to the strategy of `Dogs of the dow' followed in the US. In the US, the strategy involves investing in the high dividend yielding stocks that are part of the Dow Jones Index. The strategy has been found to beat the market consistently in the US. Adaptations of the strategy in the UK and Canada have also delivered index-beating returns.

Mid-year wobble: The strategy picked out the following stocks for 2004: Andhra Bank, Bank of India, Chambal Fertilisers, Gujarat Narmada Fertilisers, HPCL, Hero Honda Motors, Indian Oil, ONGC, Union Bank of India and VSNL. Among these stocks, only GNFC and HPCL delivered negative returns for 2004.

Seven stocks delivered returns of more than 15 per cent. Two stocks, Chambal Fertilisers and GNFC were removed from the index during the year.

Although the strategy delivered above average returns for 2004, most investors may have lost faith in it by the middle of the year. By end-June, the strategy was marginally under-performing BSE-100 and most mutual funds. The rally in stock prices since November has, however, made the strategy work again.

Among the ten stocks, only ONGC and VSNL cut the dividends for the year. The other eight either maintained or increased the dividends. The average dividend yield worked out to 4.8 per cent for the year. As can be seen, dividends contributed to less than 20 per cent of total returns. The inference is that dividend yield has once again been useful in picking under-valued stocks in India.

Stocks for 2005: The top ten dividend dogs for 2005 are: HPCL, Kochi Refineries, Hindustan Lever, Rashtriya Chemicals, Indian Oil Corporation, GE Shipping, Vijaya Bank, BPCL, Bank of India and Hero Honda Motors. The average expected dividend yield for 2005 is 4.3 per cent.

This is substantially higher than the dividend yield of about 2 per cent for the BSE-100 index as a whole. These ten stocks also account for less than 10 per cent of BSE-100 in terms of weightage.

The strategy is exposed to the same set of risks that they were in 2004; Investors have been bidding up stocks that provide high dividend yield over 2003 and 2004. As more and more money flows into such stocks, an element of cyclicality will be introduced into the performance of the dividend yield strategy.

This enhances the risk that this strategy may underperform in a given year. 2004 also proved that in a down market these stocks might not necessarily shield investors against losses. `Dogs of BSE-100' strategy is as much an aggressive strategy as growth stock investing is.

What is in favour of this strategy is its performance record over many years. Besides, almost all investment strategies face the risk of underperformance in 2005 given the substantial rise in stock prices in 2003 and 2004. In addition, risks facing oil companies and banks, which account for 60 per cent of the portfolio, appear to have abated considerably.

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