Relative strengths of nine stock indices were compared by (1) yield and (2) dividend vs price gaps using projected annual dividends from $1,000 invested in the ten highest yielding stocks in each index. This article reported February results from two composite sector indices and seven top wall street institutional mainstays: 3x9 and 1X9+1 Sector indices; the Russell 1000; S&P 500; NYSE International 100; NASDAQ 100; Dow 30; S&P 500 Aristocrats; JPMorgan Sovereigns as of February 5 to March 1, 2013.
The once per year trading system triggered by yield, "Dogs of the Index," was used to screen for the best of these best dividend stocks. The dogs system was invented to empower investors with all the wisdom and knowledge of well-paid wizards of investment and publishing, as those investors selected the highest yielding and lowest priced constituents from nine collections of equities built by experts.
To conclude this analysis, one "best of breed" stock was selected from each index. Since the 3x9 and 1X9+1 sector composite indices are derived from the same sources, just one dog was selected to represent those two derivations.
This effort was part an ongoing answer to the question, "which dividend stocks were good, better, best, bad or ugly since April?"
The research was also in keeping with 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 depicts the gyrations.
Metrics Selected Ten Top Dogs Each Index
Two key numbers determined the yields that ranked stocks in each index: (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.
Top ten dogs for each index displayed their annual dividends from $1,000 invested in the ten highest yielding stocks in the index compared to the aggregate single share prices of those top ten 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:
3x9 and 1x9+1 Sectors
The 3x9 Sectors Index is created by ranking the top three dogs from nine sectors by yield to get the ten highest ranking from that pool of twenty-seven. Results for selected top yielding dogs from each of nine business sectors along with the best yielding runner-up from any sector as the tenth perfectly diversify a top ten sector index portfolio, named 1x9+1 Sectors Index.
For February the top ten dividend paying stocks in the 3x9 index represent four sectors: two from basic materials are due to expire in 2015, Whiting USA Trust I (WHX), an oil trust, and Great Northern Iron Ore Properties (GNI), an iron ore properties trust; three from financial are ongoing concerns, Two Harbors Investment (TWO), American Capital Agency (AGNC), and CYS Investments (CYS); two from technology, France Telecom (FTE), and NTELOS Holdings (NTLS); finally, three from services, Navios Maritime Partners (NMM), Capital Product Partners (CPLP), and R.R. Donnelley & Sons (RRD).
Nine top dogs and top runner-up on the above chart made up the February 1x9+1 list: Whiting and Great Northern in basic materials; Two Harbors Investment in financial; France Telecom, technology; Navios Maritime from Services, Pitney Bowes (PBI), consumer goods; Atlantic Power (AT), utilities; Veolia Environnment (VE), industrial goods; Daxor Corporation (DXR), healthcare; 3M Company (MMM), conglomerates.
Since April 2012 the 3x9 sector dividend from $1k invested in each of these top ten stocks sank 2.7% as their aggregate single share stock price increased 59% in a bullish trend for the past year. The 1x9+1 sector dogs also ran with the bull the past year as their dividend was down 7% while their price was up 111%.
Russell 1000 Index Stocks
Russell Investments states that the Russell 1000 Index offers investors access to the extensive large-cap segment of the U.S. equity universe, representing approximately 90% of the U.S. market.
Six of the top ten stocks in this index paying the big dividends since April were financial sector firms: American Capital Agency led these. Annaly Capital Management Inc. (NLY), and Chimera Investment Corp. (CIM) immediately followed in second and third place. One consumer goods firm, Pitney Bowes Inc., was fourth. One services firm, Donnelley R R & Sons Co. was seventh. Two technology firms captured fifth and eighth slots: Windstream Corp (WIN), and Frontier Communications (FTR). Then three more financial representatives took the sixth, ninth and tenth slots Hatteras Financial Corp (HTS), Ares Capital Corp (ARCC), and MFA Financial Inc, (MFA).
Since April this index has shown a neutral market signal as dividends increased 1.5% from $1k invested in each of the top ten stocks while the aggregate single share price for those stocks also rose 4%.
S&P 500 Stocks
McGraw Hill, publisher of the S&P 500 Index states "Standard & Poor's strives to provide investors who want to make better informed investment decisions with market intelligence in the form of credit ratings, indices, investment research and risk evaluations and solutions." The company states that the "index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities."
Four of nine sectors placed top dogs in this index in February. Top dog Pitney Bowes Inc was one of three consumer goods firms. The remaining consumer goods dogs were Lorillard (LO) in seventh, and Reynolds American Inc. (RAI) in ninth place. One services firm was listed, Donnelley, R.R. & Sons in third place. Three technology firms made up the remaining top five of the top ten: Windstream Corp., second; Frontier Communications, fourth; CenturyLink Inc. (CTL), fifth. One basic materials firm was seventh, Cliffs Natural Resources (CLF). Three utilities, Exelon Corp. (EXC), in sixth, First Energy Corp. (FE) in eighth and Entergy Corp. (ETR) in tenth completed the S&P 500 top dogs.
Since April 2012 this index has sent a mixed or neutral signal as the dividend from $1k invested in each of the top ten stocks went up 13% while single share price for those stocks also went up 21%.
NYSE International 100 Stocks
The NYSE states, "The NYSE International100 Index tracks the largest 100 non-U.S. common stocks listed on the New York Stock Exchange. As of year-end 2004, the companies represented have a combined market capitalization (float-adjusted) of $4.3 trillion. Together they represent over one-quarter of the total market capitalization of all common stocks listed on the NYSE."
As of March 1, the top two stocks that showed the biggest dividend yields in this index were technology firms: top dog was France Telecom (FTE); VimpelCom Ltd. (VIP), second. Two healthcare firms were next in third and fourth, GlaxoSmithKline PLC (GSK), and AstraZeneca PLC (AZN). A third technology firm, Telecom Italia S.p.A. (TI), completed the top five. The lone financial company in the top ten placed sixth, Westpac Banking Corp. (WBK). The lone utility National Grid PLC (NGG) placed seventh. Three basic materials firms represented the bottom 30% of the top ten: Total S.A. (TOT); BP PLC (BP); Royal Dutch Shell PLC B (RDS.B). In all five of nine sectors were represented in the NYSE International top ten dogs.
Between April 2012 and January 2013 the international dogs charged ahead on a bull path. Dividends dropped 39% as price bounded up 107%. After January, however, the bears stopped the international dog bull run as dividend jumped up 11% while price sank 15%.
NASDAQ 100 Stocks
NASDAQ states, "The NASDAQ-100 Index includes 100 of the largest domestic and international non-financial securities listed on The Nasdaq Stock Market based on market capitalization. The Index reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain securities of financial companies including investment companies."
Just three of nine sectors were represented in the top ten NASDAQ dogs in February per IndexARB.com data. Technology had seven firms in the top ten showing high forward looking yields. Vodafone (VOD) claimed the top spot. The other six technology firms in declining order were: Garmin (GRMN); Seagate Technology (SEA); Intel (INTC); CA Technologies (CA); Microchip Technology (MCHP); Microsoft (MSFT). The remaining two NASDAQ high yield sectors for January included two service firms, Paychex (PAYX), and Staples (SPLS), followed by consumer goods representative, Mattel (MAT) which filled out the top ten.
NASDAQ 100 Index dogs showed bear market signals since April 2012 as projected dividend total from $1000 invested in each of the top ten dogs increased 6% while their aggregate total single share price dropped 11%.
S&P 500 Aristocrats Stocks
McGraw Hill, publisher of this index, states, "The S&P 500® Dividend Aristocrats index measures the performance of large cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years."
February Aristocrats featured seven of nine business sectors in the top ten by yield. One of two consumer goods firms led the pack. Pitney Bowes Inc. was top dog; Leggett & Platt (LEG) was fifth. One technology dog, AT&T (T) was in second place; two financials, HCP, Inc. (HCP), and Cincinnati Financial (CINF), were in third and sixth place; one utility, (ED) placed fourth; two service firms placed seventh and ninth, Sysco Corporation (SYY), and McDonald's Corp. (MCD); one basic materials firm, Nucor Corp. (NUE) was eighth; Johnson & Johnson (JNJ) the lone healthcare sector representative rounded out the top ten Aristocrats dogs in tenth place.
Since April 2012, S&P 500 Aristocrats charted a bullish path as dividends from $1k invested in each of the top ten dogs declined 5% while the aggregate single share price for those stocks popped up 16.6% for the period. S&P 500 Aristocrats have now reinforced their overbought condition since January as price exceeded dividends by about $27 or 6%. Of all the indices in this article, the S&P Aristocrats is the most neutral in bullish or bearish price and dividend movement. It is however, the least overbought of three indices that include the following two.
Dow 30 Stocks
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. The leadership position of the component stocks in the DJIA tends to result in an extremely high correlation of the DJIA to broader U.S. indexes, such as the S&P 500 Index providing additional opportunities."
The February Dow dogs included five of nine business sectors in the top ten by yield. Three of four technology firms showed the biggest dividend yields according to Yahoo: AT&T (T) ; Verizon (VZ); Intel Corp. (INTC). The fourth tech firm, Microsoft (MSFT) placed sixth. Two healthcare firms ranked themselves in fourth and fifth place: Merck (MRK), and Pfizer (PFE). One basic materials firm, Dupont (DD) was listed seventh. The lone industrial goods firm, General Electric (GE) placed eighth. The only healthcare firm, Johnson & Johnson (JNJ) placed ninth. Finally, the lone services firm, McDonald's (MCD) rounded out the top ten Dow list.
Projected annual dividend from $1k invested in each of the top ten decreased nearly 4% since January, while aggregate single share price jumped nearly 29%. Like the Aristocrats. the Dow dogs returned to an overbought condition as aggregate single share price of the ten exceeded projected annual dividends from $1k invested in each of the ten by almost $55 or 14%.
JPMorgan New Sovereigns Stocks
Thomas Lee, an equity strategist with JPMorgan, July 22, 2011, published a note titled "Corporates are the New Sovereigns: 22 stocks to own around sovereign default." The Barron's article covering Lee's announcement defined a Sovereign as an entity which can print money or tax at will. Lee's report listed 22 corporate stocks that show less risk of default than the sovereign U.S. government, based on five-year credit spreads, free cash flow yields exceeding bond yields, ratings of overweight by JPMorgan, and showing upside to their target prices at that time.
The biggest yields for ten February Sovereigns included firms from five of nine business sectors. Two industrial goods firm captured two of five top slots: Lockheed Martin Corp. (LMT), was top dog while, Raytheon Inc. (RTN) was fifth seeded. Two basic materials firms took second and fourth, Conoco Phillips (COP), and Freeport-McMoRan (FCX). The lone healthcare firm, Merck (MRK) placed third. Three services firms dominated the bottom five of these top ten dogs as they placed sixth, ninth and tenth: United Parcel Service (UPS); Norfolk Southern Corp. (NSC); CSX Corporation (CSX). Finally two consumer goods firms placed seventh and eighth, Coca Cola Co. (KO), and Pepsico Inc. (PEP), to round out the top ten January new sovereign dogs.
JPMorgan Sovereigns Index constituents showed as most overbought of these nine indices throughout 2012 and into 2013. Projected dividend totals for $1000 invested in the top ten were consistently graphed $200 more or less below their aggregate total single share price. These dogs have followed a bear track for the past year as dividends increased 6% while price slumped over 11%.
All Together Now
Each graph below shows periodic 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 price of one share of each of the ten stocks (green points) by index. Grouped together the graphs display seven periods of comparative gyrations for the nine indices described.
Dog Teams Display Dividend Dominance
The following graph shows annual dividends projected from $1000 invested in each of ten stocks with top yields in nine indices. The chart plotted projected dividends as of a specific purchase period since April, 2012. Generally, projected dividends increased in the indices when average stock price fell. However yield projections were subject to corporate fiscal considerations so dividend also plunged when cuts were made.
Annual Dividends Forecast from $1k Invested in Each of 10 Top Yielding Stocks in 9 Indices
Relative yield strengths differentiated the indices graphed. The JPMorgan Sovereigns showed the lowest dividend from $1000 invested in each of those ten top stocks with a low trajectory up 6% since April.
The Dow and NASDAQ dividend from $1k invested in each of their top ten dogs April $1 apart but thereafter separated with the NASDAQ top ten showing a higher aggregate dividend. The Dow dividend is now down 3% since April while the NASDAQ 100 top ten dividend was up over 6% for the period. Aristocrats dividend decreased 5% since April 2012.
NYSE International 100 dividends from $1000 invested in the top ten stocks showed the biggest drop of all indices at 39% between April 2012 and January. In the past month though a bear pushed the international dog dividend up 11%. S&P 500 projected dividend was up 13% since April 2012.
Russell index dogs nudged 1.5% higher in projected dividend in the past year. Dividend projected from top ten 1x9+1 sector dogs dropped 7% over the past 12 months; 3x9 sector dog dividend dropped 2.7%.
Relative Risk For Dogs by Index
A reader request to "add relative financial data on the companies selected" for an early article comparing indices only by annual yield projections has inspired a simple tool to gauge investment risk. The tool is best applied prior to the purchase of any 5 or 10 Dogs of the Index stocks at any point during the year. This information continues to be reviewed as one step toward Robert Schiller's admonishment to "make conservative preparations for possible bad outcomes."
Divergence from Share Price Ranked Investor Risk by Index
The charts and accompanying graphs below show the divergence ranks of the nine indices for investment risk from high to low.
Actionable Conclusion: Analysts Forecast Dogs in 8 Indices To Reckon 8% to near 18.5% Annual Net Gains
Charts below for each index show comparative net gains as of March 1, 2013 and those projected to March 1, 2014. Historic aggregate single share price of the ten highest yielding stocks created the numbers for 2013. Projections based on aggregate one year analyst mean target prices as reported by Yahoo Finance created the 2014 numbers for each index.
Five dogs from each index were selected as sells based on highest net gain. The hypothetical sale of those stocks (including a -$20 broker fee) added to the projected dividends revealed the total net for each index. Since $10k is the initial investment, the percentage net gain is easy to calculate for each index.
The number of analysts contributing to the mean target price estimate for each stock is noted in the last column on the charts. Three to nine analysts is considered optimal for a higher probability projection estimate.
Sectors 1x9+1 Index Analysts See Near 19% Net Gains
Russell 1000 Index Analysts See Near 18% Net Gains
S&P 500 Index Analysts See Over 16% Net Gains
NYSE International 100 Index Analysts See Over 12% Net Gains
NASDAQ 100 Index Analysts See Over 10.5% Net Gains
JPM New Sovereigns Index Analysts See Over 9.5% Net Gains
S&P 500 Aristocrats Index Analysts See Over 8% Net Gains
DOW 30 Index Analysts See Over 8% Net Gains
Summary of Index Price Upsides
Top ten dogs for this index component list were graphed below to show relative strengths by price as of February, 2013 and those projected to February, 2014. Historic aggregate single share price of the ten highest yielding stocks created the numbers for 2013. Projections based on aggregate one year analyst mean target prices as reported by Yahoo Finance created the 2014 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 1.51% for the ten S&P 500 Aristocrat dogs to 9.84% for the ten 1x9+1 Sector Index dogs.
Actionable Conclusion Too: 8 Top Profit Potential Dog Trades Flash 19% to 41.5% Annual Gains
The most likely profit generating dog trades one year hence were revealed by analysts mean target pricing for each of eight indices determined by one to fourteen analysts*. The list below is summarized from Yahoo Finance and IndexArb.com data.
France Telecom's 41.5% price gain in the 1x9+1 Sectors index was determined by a mean target price set by 1* analyst.
Donnelley R R & Sons Co.'s 35% price gain in the S&P500 index next year was based on mean target pricing set by 4 analysts.
BP PLC's 30% price gain in the NYSE 100 International index was based on a mean target price set by 9* analysts.
Freeport-McMoRan revealed a 29% annual gain in the JPM Sovereigns index based on mean target pricing set by 14* analysts.
Pitney-Bowes 29% price gain in the S&P500 Aristocrats index next year was based on mean target pricing set by 3 analysts.
Windstream Corp.'s 26% price gain was tops in the Russell 1000 Index as of next March was based on a mean target price set by 13* analysts.
Vodafone in the NASDAQ 100 index was projected to have a 24% price gain based on a mean target price set by 13* analysts.
Microsoft Corp. showed a 19% price gain in the Dow index next year based on a mean target price set by 30* analysts.
(*Note: A mean target price projection based on estimates compiled by more than eight or fewer than three analysts is deemed unreliable.)
These indices and their component stocks have ongoing stories to tell. Their graphs, charts, and lists of companies will be updated for publication periodically. Stay tuned.
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.