Trusts: buying the dogs of the Dow: the target 10 is an excellent opportunity to invest and profit from quality, out-of-favour stocks

Money Digest, Feb, 1996 by Ted Canning

Recently, a new unit trust was created with an interesting investment strategy.

The Target 10 Trust operates on a very simple investment philosophy: buy a quality portfolio of the 10 highest dividend-yielding stocks of the 30 companies in the Dow Jones Industrial Average and hold them for one year.

On the anniversary date of the creation of the portfolio, the DJIA is then re-evaluated and the resulting 10 highest dividend-yielding stocks are held for the following year, and so on for the life of the trust. (The trust ending date is January 1, 2001.) As you know, the stocks listed in the DJIA are among the largest, most widely held stocks in the world.

Investment in the common stocks of the 10 companies in the DJIA having the highest dividend yield amounts to a `contrarian' strategy, since the high yield percentage indicates an underpriced or out-of-favour company.

However, this strategy has outperformed the DJIA 14 out of the last 20 years and has a higher 10-year annualized return than more than 90% of Diversified U.S. Equity Mutual Funds.

Is it for you?

An investment in the Target 10 Trust may be ideal if you are seeking the potential for above-average growth through a combination of capital appreciation and dividend income.

The minimum investing is $5,000 with each unit having a NAV listed daily under `other' mutual funds. The unit does not trade on the TSE, but is redeemable based on the NAV. The issue is now sold by prospectus only and will have multiple closings throughout the spring of 1996. The initial closing date was December 14, 1995 with offering price of $15.