A once per year trading system triggered by yield, "Dogs of the Index," can be used to determine the best of the best dividend stocks. The dogs system can empower you as an investor with all the wisdom and knowledge of well-paid wizards of investment and publishing for free, as you select the highest yielding and lowest priced constituents in a collection of equities built by experts.
This article marked the November 2012 chapter in the ongoing effort to respond to the question, "what dividend stocks are good, better, best, bad or ugly?" The effort also heeded Yale professor Robert Shiller's observation: "People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes." Hence this article graphically depicted the gyrations.
Below Dogs of the Index methodology was applied to: David Fish's vaunted (1) Champions, (2) Contenders, and (3) Challengers, plus a (4) Composite CCC Index; (5) Chuck Carnevale's Power 25 Index; (6) Super 29 Index; (7) Dividend AchieversTM 50; (8) Russell 50; All of it based on (9) Dogs of the Dow. (CCCCCCARD = 9 awesome indices!). Results were from Yahoo finance as of November 30 to December 11, 2012.
Dog Metrics Revealed Ten in Each Index
Two key metrics determined the yields that graded those index dog stocks: (1) stock price; (2) annual dividend. Dividing the annual dividend by the price of the stock declared the percentage yield by which each dog stock was ranked.
Historically, investors utilized this ranking system to select portfolios of five or ten stocks in any one grouping to trade. They optimistically awaited the results from their investments in the lowest priced, highest yielding stocks and prayed that the price of every stock they now owned climbed higher (having locked in a high yield percentage at purchase).
This Dogs of the Index strategy, popularized by Michael B. O'Higgins in the book "Beating The Dow" (HarperCollins, 1991), revealed how low yielding stocks whose prices increase (and whose dividend yields therefore decrease) can be sold off once each year to sweep gains and reinvest the seed money into higher yielding stocks in the same index. Prior to the publication of the O'Higgins book, Dow dogs were known by some market watchers as "fallen angels."
Top ten dogs for each index displayed their annual dividends from $1000 invested in the ten highest yielding stocks in the index compared to the aggregate single share prices of the top ten stocks therein created the data points for each of the past seven periods shown in green for price and blue for dividends.
Previous posts ranked the subject indices by risk in the following order from most risk to least:
CCC Combined Index
David Fish's top performers from all lists encompassing companies paying increasing dividends for 5 consecutive years or more (from here) were ranked by yields calculated as of December 10.
CCC combined index top ten dogs projecting the biggest dividend yields through November included firms representing four of nine market sectors. The CCC combo top ten included two service firms, Navios Maritime Partners LP (NMM), on top, and StoneMor Partners LP (STON), in fifth place. Two consumer goods firms, Pitney Bowes Inc. (PBI), and Vector Group Ltd. (VGR) took the second and sixth slots. Four basic materials companies ranked themselves, third, then eighth though tenth: Natural Resource Partners LP. (NRP); NuStar Energy LP (NS); Exterran Partners LP (EXLP); Vanguard Natural Resources LLC (VNR). Two financials firms, completed the top ten placing fourth and seventh: Dynex Capital Inc. (DX); PennantPark Investment Corp. (PNNT).
Since January the CCC combined index top ten dogs dividend from 1K invested in each increased 19.5% while aggregate single share price for the top ten dropped 38%. Since October, however their dividend jumped 12% while price sank 6.5% continuing the bear track of 2012.
David Fish's Challengers list (from here) distinguishes companies that have paid higher dividends for 5 to 9 straight years. Dividend challenger stocks listed below were ranked by yields calculated as of December 10.
Ten challenger dogs posting the biggest dividend yields included firms representing three of nine market sectors. The top stock, Navios Maritime Partners LP, was one of two in the services sector. The other services firm, StoneMor Partners LP, was in fourth place. Five basic materials companies took second as well as sixth through eighth and tenth places: Natural Resource Partners LP; Exterran Partners LP; Vanguard Natural Resources LLC (VNR); Crestwood Midstream Partners LP (CMLP); Boardwalk Pipeline Partners LP (BWP). Three financials completed the top ten in third, fifth and ninth places: Dynex Capital Inc.; PennantPark Investment Corp. (PNNT); Triangle Capital Corp. (TCAP).
Since January the Challenger index top ten dogs dividend from 1K invested in each stock increased 15% while aggregate single share price for the top ten dropped 27%. Since October, dividend inclined 9% while price declined 7% continuing on the 2012 bear path.
Dividend AchieversTM 50
Dividend AchieversTM 50 Index was chosen from here. Indxis the publisher states AchieversTM 50 Index constituents are revealed as follows: "Select US companies with at least ten consecutive years of increasing regular dividends (Mergent's US Dividend Achievers™). US companies must be listed on the NYSE or NASDAQ. Master Limited Partnerships (MLPS) and Real Estate Investment Trusts (REITs) are excluded from the Index. US Companies must have a minimum average daily cash volume of US$500,000 per day for the November and December prior to each Annual Reconstitution date. Rank the US companies in descending based on their current dividend yield as of the last trading date in December. Select the 50 US companies with the highest current dividend yield as of the last trading date in December."
Dividend Achievers top ten stocks paying the biggest dividends as of December 10 included equities representing five market sectors. The top two stocks as revealed by Yahoo Finance data, were from the consumer goods sector, Pitney Bowes Inc (PBI) was first, while Vector Group Ltd. (VGR) followed. Another consumer goods firm, Altria Group Inc (MO), placed eighth on the list. The best yielding of three financial stocks, Old Republic International (ORI) took third on this list. The other two financial stocks fell into fourth, and sixth places: Mercury General Corp (MCY); People's United Financial (PBCT). The lone technology firm, AT&T Inc. (T), took fifth place. Two utility firms fell into the seventh and ninth slots: PPL Corporation (PPL); Vectren Corp. The lone basic materials firm, ConocoPhillips (COP), was tenth.
Since January the Dividend Achievers 50 index top ten dividend from 1K invested in each has increased 9% while aggregate single share price for the top ten increased 18%. The entire price increase took place through November as it jumped 21%.
This translates as an interrupted bear grumble as a bullish price charged the Dividend Achievers 50 index top ten dogs in November.
The Contenders list (from here) contains stocks distinguished by having paid increasing dividends for 10 - 24 years. Contenders stocks listed below were ranked by yields calculated as of December 10.
Five of nine Yahoo Finance market sectors were represented in the top ten Contenders dog list below. Top dog was the lone consumer goods stock, Vector Group Ltd. (VGR). Four of five basic materials firms placed two through fifth and seventh: NuStar Energy LP; Buckeye Partners LP (BPL); Alliance Resource Partners LP (ARLP); TC Pipelines LP (TCP); Kinder Morgan Energy Partners (KMP).
The balance of the top ten included two financial firms, Omega Healthcare Investors (OHI) in sixth and W.P. Carey Inc. (WPC) in tenth; one technology firm, Communications Systems Inc. (JCS) in eighth; one service firm, Best Buy Corp. (BBY), in ninth.
Since January this contenders collection of top ten dogs by yield remained tepid as the dividend from $1k invested in each of the top ten stocks increased .43% over the year as their aggregate single share price decreased 1.3%. A tepid bull run by this index peaked in April but retreated 6% in price since that point.
David Fish's Champions list of companies paying increasing dividends for 25 consecutive years or more was sorted by yield as of December 10 to reveal the top ten. Price and dividend data was sourced from Yahoo.com
Ten Champion dogs that promised the biggest dividend yields through November included firms representing five of nine market sectors. The top stock, Pitney Bowes, was one of two firms in the consumer sector. Altria Group Inc. (MO) in fifth place was the other consumer goods dog.
The balance of the top ten included: five financial, Old Republic International. second dog, Mercury General Corp. third, Universal Health Realty Trust (UHT) seventh, United Bankshares Inc. (UBSI) eighth, and HCP Inc. (HCP) tenth; one technology, AT&T Inc. (T) was fourth; one service, Bowl America Class A (BWL.A) was sixth; one utility, Vectren Corp. (VVC) was eighth representing market sectors.
Bullish upward price and dividend moves since January may portend year end gains. The Champions top ten reliable dividend stocks showed a 4% dividend rise since then while their aggregate single share price also rose 14.5%.
This bullish trend for the Champions is unique within the David Fish CCCC group for the year.
Carnevale's Super 29 Index
April 2, 2012, Seeking Alpha blogger, respected stock analyst, and creator of Fastgraphs, Chuck Carnevale, published 29 Dividend Champions That Beat The Market, Inflation & 2 Recessions Since 2001. He listed top 29 blue chip dividend growth stocks that: (1) consistently raised dividends for 37 years (or more); (2) were at or below fair market value in 2001; (3) outperformed the S&P 500 on a total return basis.
Carnevale's Super 29 top ten stocks showing the biggest dividend yields as of December 10 included firms representing six of nine market sectors. Top stock as revealed by Yahoo Finance data, was one of two in the service sector, Bowl America Class A. The other service sector took the tenth slot, Genuine Parts Co. (GPC).
The only financial firm in the top ten, United Bankshares Inc. (UBSI) was second dog.
Third dog on the Super 29 list was one of three consumer goods firms: Leggett & Platt Inc. (LEG); Diebold Inc. (DBD) was sixth; Procter & Gamble Co. (PG) the another consumer goods firm was ninth. The balance of the top ten included: two utilities, Consolidated Edison (ED) fourth place, and California Water Service (CWT), in eighth; two basic materials firms, Northwest Natural Gas Co. (NWN) and Nucor Corp. (NUE) seventh, completed the top ten Super 29 dogs.
Chuck's full list of 29 stocks has four service, two healthcare, six consumer goods, two financial, three basic materials, six industrial goods, four utility, no technology, and one conglomerate representing eight of nine market sectors.
Bullish price moves since October showed the dividend from $1k invested in each of these ten dogs declining .15% while aggregate single share price inclined 9.9%.
The Carnevale Super 29 collection of top ten dividend yielders continued to display remarkable calm over the periods graphed since January. Dividend from $1k invested in each of the top ten rose .47%. Meanwhile aggregate single share stock price for these Carnevale Super 29 also increased 24% for the period with much of the price increase occurring between January and February augmented by the latest November surge.
Carnevale Power 25 Index
Respected stock analyst, Seeking Alpha blogger, and creator of Fastgraphs, Chuck Carnevale, published Our 25 Dividend Growth Stocks Are Dirt Cheap in November, 2011. He listed top 25 blue chip dividend growth stocks that: (1) were available at current valuations; (2) were significantly below their historical norms; (3) remained profitable through the great recession of 2008 and 2009.
Carnevale's top ten Power 25 stocks paying the biggest dividends as of December 10, 2012 included firms representing six market sectors. The top stock as revealed by Yahoo Finance data, was one of two in the service sector, RR Donnelley & Sons (RRD), while Sysco Corporation (SYY) placed fifth.
The balance of the top ten Power 25 included: two basic materials, Alliance Resource Partners was second dog, and Chevron Corp. (CVX) was ninth; two technology firms, Intel Corporation (INTC), third, and Microsoft Corporation, (MSFT) eighth ; two healthcare firms, Novartis AG (NVS) came in fourth, and Johnson & Johnson (JNJ) slotted seventh; one utility, Nextera Energy (NEE) ranked fifth; the lone industrial goods firm, Republic Services Inc. (RSG) was tenth representing market sectors.
The full list of 25 stocks had five service, five healthcare, three consumer goods, one financial, three basic materials, five industrial, one utility, one technology and no conglomerates representing market sectors.
The Carnevale Power 25 collection of top ten dividend dogs by yield since January was mildly bullish as aggregate single share stock price for the top ten increased 3.6% as did their annual projected dividend increase 14% from $1k invested in each of those stocks.
January through April aggregate single share price surpassed dividend from $1k invested in each of the ten to signal an overbought condition for the index. From May to October however dividend exceeded price. The latest 12/10/12 numbers for November showed a return to overbought status as price crept above the dividend reported.
Russell Top 50
Top ten Russell 50 stocks by yield are shown as of December 10 per Yahoo Finance data. Russell Investments, their publisher states: "The Russell Top 50 Index is constructed to provide a comprehensive unbiased and stable barometer of the largest U.S. companies. The Index is completely reconstituted annually to ensure new and growing equities are reflected."
As of December 10, five of nine market sectors were represented in the top ten Russell 50 stocks by yield. Top dog was AT&T, one of three technology firms in the top ten. Verizon Communications was number three and Intel Corporation placed at number five. The rest of the top ten Russell 50 pack included: one consumer goods firms, Altria Group, in second place; one basic materials firm, ConocoPhillips at number four; four healthcare firms placed sixth through ninth, Bristol Myers Squibb (BMY), Merck & Co. Inc. (MRK), Johnson & Johnson, and Pfizer Inc.. Finally, the lone service dog at number ten, McDonald's Corporation (MCD) fills out the pack of five of nine sectors.
Russell 50 top ten aggregate single share prices moved rapidly away from annual projected dividends from $1,000 invested in each stock from January until June. This pattern of price exceeding dividends revealed an overbought condition for this index which has continued all year.
The bulls were running from February to June and Russell dividend yields dropped while stock prices popped 24% in that period. Between July and November, however, the bear prevailed as dividend from 1k invested in each of these Russell 50 top ten stocks climbed 8% while aggregate single share price for the ten sank 8%. The bear had the Russell 50 dogs retreating as year end approached.
Dow 30 Index
CME Group, publisher if this index, states, "The Dow Jones Industrial Average (DJIA) is a price-weighted index of 30 blue-chip U.S. companies representing nine economic sectors including financial service, technology, retail, entertainment and consumer goods."
This kennel of top ten dogs represented four of nine market sectors as of November 30. Based on dividend projections from indexArb.com, four technology firms showed the biggest dividend yields on the Dow: AT&T Inc. was top dog; Intel Corporation was two; Verizon was three; Hewlett-Packard (HPQ) was fourth dog. A fifth tech firm placed tenth, Microsoft Corp.
The rest of the Dow 10 dogs included one basic materials firm, Dupont (DD) in fifth; then three healthcare firms in sixth through eighth places, Merck & Company, Pfizer Inc., and Johnson & Johnson; one services firm, McDonald's Corp. in ninth wrapped up the four of nine market sectors.
Thirty Dow stocks include seven technology companies, three consumer goods, four financial, four services, four basic materials, two industrial, three health care, no utilities, and three conglomerates.
Dow 30 Index dogs reflected roller coaster price swings between January and July while projected dividend totals for $1000 invested in the top ten held fairly steady at the $400 mark. Thus the graph resembles a twin peaked landscape as aggregate single share prices spiked into overbought territory in February and
April to June.
The Dow dogs signaled an overbought condition nearly every period since February with aggregate single price greater than dividend projected from $1k invested in each of the ten. The November period, however showed a reversal with dividend exceeding price.
All Together Now
Each graph below shows monthly points of comparison between annual projected dividends resulting from $10,000 invested as $1,000 each in the top ten high yield stocks (blue points) versus the total prices of one share of each of the ten stocks (green points) by index. Grouped together the graphs display eight points of comparative gyrations for the nine indices described.
Dog Teams Vie for Dividend Dominance
The following graph shows annual dividends projected from $1000 invested in each of ten stocks with the top yields in nine indices.
Annual Dividends Forecast from $1k Invested in each of 10 Top Yielding Stocks in the 9 CCCCCCARD Indices
The chart plotted projected dividend amounts as of a specific purchase date at eight points since January. Only the Russell 50 of the nine indices showed dividends dropping in bull market fashion since January.
Actionable Conclusion: Relative Risk For Dogs by Index
Projected dividend vs. price amounts from these eight indices and the Dow over the past seven periods displayed nine distinct divergence levels.
These indices were ranked for risk as of November 30, to December 11, 2012 in the following manner: (1) Add the single share prices of the top ten stocks on an index list. Then, (2) add the total annual dividend amounts projected from $1000 invested in each of those ten stocks. Finally, (3) compare the resulting two numbers. Lesser divergence between dividend amounts above single share prices revealed the indices with lesser risk. Overbought stock indices showed negative divergence.
By that baseline standard of divergence, these eight indices and the Dow rank themselves by risk as follows:
Actionable Conclusion Too: Analysts Forecast Dogs in CCCCCCARD Indices To Reckon 8% to 30% Net Gains
Charts below for each index show comparative net gains as of November, 2012 and those projected to November, 2013. Historic aggregate single share price of the ten highest yielding stocks created the numbers for 2012. Projections based on aggregate one year analyst mean target prices as reported by Yahoo Finance created the 2013 numbers for each index.
Five dogs from each index were selected as sells based on highest net gain. The hypothetical sale of those stocks added to the projected dividends revealed the total net for each index. Since $10k was the initial investment, the percentage net gain was easy to calculate for each.
The number of analysts contributing to the mean target price estimate for each stock was noted in the last column on the charts. Three to nine analysts was considered optimal for a projected estimate.
CCC Combination Index Analysts See Over 30% Net Gains
Challenger Index Analysts See Near 27% Net Gains
Dividend Achievers 50 Index Analysts See Over 16% Net Gains
Contender Index Analysts See Over 27% Net Gains
Champions Index Analysts See Near 13% Net Gains
Carnevale Super 29 Index Analysts See Near 12% Net Gains
Carnevale Power 25 Index Analysts See Near 18% Net Gains
Russell 50 Index Analysts See Over 8% Net Gains
DOW 30 Index Analysts See Over 12% Net Gains
Actionable Conclusion Three: Index Price Upsides
Top ten dogs for this index component list were graphed below to show relative strengths by price as of November, 2012 and those projected to November, 2013. Historic aggregate single share price of the ten highest yielding stocks created the numbers for 2012. Projections based on aggregate one year analyst mean target price as reported by Yahoo Finance created the 2013 numbers for each index.
This became a graph of upside price potential since all the analyst estimates showed positive price gains for each sector ranging from 1.8% for the ten Dividend Champions dogs to 27.23% for the ten CCC Combo Index dogs.
Actionable Conclusion Four: CCCCCARD Top Profit Generating Dog Trades To Net 18% to 67%
The top profit generating dog trades one year from now were revealed by analysts mean target prices for each of nine indices. The list below is summarized from Yahoo Finance and IndexArb.com data.
- Natural Resource Partners in the Challengers Top 10 projected a near 67% price gain determined by a mean target price set by 4 analysts.
- Pitney Bowes Inc. in the Champions Top 10 was projected to net over a 51% gain based on mean target price set by 4 analysts.
- Diebold Inc. netted over a 49% gain in the Carnevale's Super 29 index top ten based on a mean target price set by 6 analysts.
- Donnelley RR & Sons Inc. netted nearly a 49% gain in Carnevale's Power 25 index top ten based on a mean target price set by 4 analysts.
- Vector Group in the Dividend Achievers 50 index netted its near 48% net gain as of next November based on a mean target price set by 1 analyst.
- Exterran Partners LP netted over a 44% net gain in the Combined CCC top ten next year based on a mean target price set by 5 analysts
- Alliance Resource Partners netted nearly a 44% annual gain in the Contenders top ten based on mean target pricing set by 8 analysts.
- Microsoft Corp. netted over a 34% net gain in the Dow 30 index top ten next year based on a mean target price set by 24 analysts.
- Intel Corp. netted nearly 18% annual gain in the Russell 50 Index top ten based on a mean target price set by 37 analysts.
As mentioned above, three to nine analysts was considered optimal for an accurate projected estimate.
Nine indices and their component stocks will have ongoing stories to tell. These graphs, charts, and lists of companies will be updated again for publication periodically.
Disclaimer: This article is for informational and educational purposes only and should not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security. Prices and returns on equities in this article except as noted are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.