Triggered by yield, "Dogs of the Index," can be used as a once per year trading system to identify 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 February/March 2013 episode of ongoing work to answer 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 those 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, and his more recently revealed (7) Safe 30 Index; (8) Dividend AchieversTM 50; (9) Russell 50; All of it based on (10) Dogs of the Dow. (CCCCCCCARD = 10 awesome indices!). Results were from Yahoo finance as of March 8, 2012.
Dog Metrics Picked Ten from 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 O'Higgins book, Dow dogs were known by some market watchers as "fallen angels."
Top ten dogs from each index displayed their projected annual dividend from $1000 invested in the ten highest yielding stocks in the index compared to the aggregate single share price 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 dividend.
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 January 25.
CCC combined index top ten dogs projecting the biggest dividend yields into March included firms representing four of nine market sectors. The CCC combo top ten included two service firms, Navios Maritime Partners LP (NYSE:NMM), first and StoneMor Partners LP (NYSE:STON) seventh. Two financials firms placed second and sixth: Dynex Capital Inc. (NYSE:DX); PennantPark Investment Corp. (NASDAQ:PNNT). Consumer goods firms were represented by Pitney Bowes Inc. (NYSE:PBI) in third place, and Vector Group Ltd. (NYSE:VGR) in fifth. Four basic materials companies ranked themselves, fourth, then eighth though tenth: Natural Resource Partners LP. (NYSE:NRP); NuStar Energy LP (NYSE:NS); Vanguard Natural Resources LLC (NASDAQ:VNR); Exterran Partners LP (NASDAQ:EXLP).
Since April the CCC combined index top ten dogs dividend from 1K invested in each decreased 1.2% while aggregate single share price for the top ten popped up 11%. Since January dividend dropped 3.7% while price popped up 2.4% as a charging bull raged through the markets.
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 March 8.
Ten challenger dogs posting the biggest projected dividend yields included firms representing just three of nine market sectors. The top stock, Navios Maritime Partners LP (NMM), was one of two in the services sector. The other services firm, StoneMor Partners LP (STON), was in fourth place. Two financials completed the top three: Dynex Capital Inc.(DX); PennantPark Investment Corp. (PNNT). Six basic materials companies took all the rest of the top ten places: Vanguard Natural Resources LLC (VNR); Exterran Partners LP (EXLP); Crestwood Midstream Partners LP (NYSE:CMLP); Boardwalk Pipeline Partners LP (NYSE:BWP); Enbridge Energy Partners LP (NYSE:EEP); NuStar GP Holdings LLC (NYSE:NSH).
Since April 2012 the Challenger index top ten dogs dividend from 1K invested in each stock returned to even at about $898. Meanwhile aggregate single share price for the top ten popped up over 12%. Since January, dividend declined 5% while price inclined over 6% as the charging bull marked its presence.
Dividend AchieversTM 50
Dividend AchieversTM 50 Index was chosen from here. Indxis, the publisher, stated AchieversTM 50 Index constituents were 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 AchieversTM top ten stocks paying the biggest dividends as of March 12 included equities representing five of nine market sectors. The top two stocks as revealed by Yahoo Finance data, were two from the consumer goods sector, Pitney Bowes Inc (PBI) was first, while Vector Group Ltd. (VGR) followed. Another consumer goods firm, Altria Group Inc (NYSE:MO), placed fifth on the list. The best yielding of four financial stocks, Mercury General Corp (NYSE:MCY) took third on this list. The other three financial stocks fell into fourth, ninth, and tenth places: Old Republic International (NYSE:ORI); People's United Financial (NASDAQ:PBCT); United Bankshares, Inc. (NASDAQ:UBSI). One industrial goods concern, (NYSE:LMT) was sixth. The lone technology firm, AT&T Inc. (NYSE:T), took seventh place. One utility firm PPL Corporation (NYSE:PPL) completed the top ten AchieversTM in eighth position.
Since April 2012 the top ten Dividend AchieversTM 50 index dividend from 1K invested in each member has increased 1.6% while aggregate single share price for the top ten also increased by 26% sending slightly mixed messages to investors.
Since January however dividend slacked off in the Dividend AchieversTM 50 index while price increased. Dividend sagged 3% while price improved 17.5% flashing a strong bullish signal.
The Contenders list (from here) contains stocks distinguished by having paid increasing dividends for 10 to 24 years. Contenders stocks listed below were ranked by yields calculated as of March 8.
Five of nine Yahoo Finance market sectors were represented in the top ten Contenders dog list below. Top dog was one of six basic materials firms, Natural Resource Partners LP (NRP). Other basic materials representatives placed third through sixth, and ninth: NuStar Energy LP (NS); Alliance Resource Partners LP (NASDAQ:ARLP); Buckeye Partners LP (NYSE:BPL); TC Pipelines LP (NYSE:TCP); Kinder Morgan Energy Partners (NYSE:KMP).
The lone consumer goods stock, Vector Group Ltd. (VGR) placed second. The balance of the top ten contenders included one financials firm, Omega Healthcare Investors (NYSE:OHI) in seventh, one industrial goods firm, WaterFurnace Renewable Energy Inc. (OTC:WFIFF) in eighth, and one technology firm, Communications Systems Inc. (NASDAQ:JCS), placed tenth.
Since April 2012 these contenders top ten dogs by yield generally continued to slide lower in both dividend and price. Dividend from $1k invested in each of the top ten stocks dropped 8% over the year while aggregate single share price sagged nearly 10%. A mixed signal from this index was emitted since January as dividend increased 5.8% while price squeaked up 4.5%. Dividends declined in all other indices.
David Fish's Champions list of companies paying increasing dividends for 25 consecutive years or more was sorted by yield as of March 8 to reveal the top ten. Price and dividend data was sourced from Yahoo.com
Ten Champion dogs that promised the biggest dividend yields into March included firms representing five of nine market sectors. The top stock, Pitney Bowes (PBI), was one of two firms in the consumer sector. Altria Group Inc. (MO) in fourth place was the other consumer goods dog.
The balance of the top ten included: five financial, Mercury General Corp. (MCY) second dog, Old Republic International. (ORI) third, United Bankshares Inc. (UBSI) seventh, HCP Inc. (NYSE:HCP) eighth, and Universal Health Realty Trust (NYSE:UHT) ninth; one service, Bowl America Class A (NYSEMKT:BWL.A) was fifth; one technology, AT&T Inc. (T) placed seventh; one utility, Vectren Corp. (NYSE:VVC) in tenth, and completed the representation of market sectors in the champions index.
Upward price and downward dividend moves were exhibited in this index since April 2012, flashing bullish signs. The Champions top ten reliable dividend stocks have showed a near 2% dividend drop for the period while their aggregate single share price rose nearly 15%.
The Champions like the challenger and combo segments of David Fish's CCCC group finished the year on a bullish upward price swing since January of 0.6% accompanied by a 5% drop in dividend yield from $1k invested in each of these ten dogs.
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 projected dividend yields as of March 8 included firms representing five of nine market sectors. Top stock revealed by Yahoo Finance data, was the lone representative of the service sector, Bowl America Class A (BWL.A). 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 utilities, Consolidated Edison (NYSE:ED). The other utilities, Connecticut Water Service Inc. (NASDAQ:CTWS), and California Water Service (NYSE:CWT), were seventh and ninth on this top ten list. Fourth place went to one of two basic materials firms, Northwest Natural Gas Co. (NYSE:NWN). The other basic materials firm, Nucor Corp. (NYSE:NUE) was eighth. The balance of the top ten included: three consumer goods firms: Diebold Inc. (NYSE:DBD) in fifth; Leggett & Platt Inc. (NYSE:LEG) in sixth; Procter & Gamble Co. (NYSE:PG) the third consumer goods firm was tenth to complete 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 utilities, no technology, and one conglomerate representing eight of nine market sectors.
A bullish price move since April 2012 showed the dividend from $1k invested in each of these ten dogs declined 3.8% while aggregate single share price inclined 9%.
The Carnevale Super 29 collection of top ten dividend yielders continued that bull trend after January as aggregate single share stock price for these Carnevale Super 29 popped up 2.2% for the past month as dividend from $1k invested in each of the ten dropped 1.6%.
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 five of nine market sectors as of March 8. Based on dividend projections from indexArb.com, three technology firms showed the biggest dividend yields on the Dow: AT&T Inc. (T) was top dog; Intel Corporation (NASDAQ:INTC) was two; Verizon (NYSE:VZ) was third dog. A fourth tech firm placed sixth, Microsoft Corp (NASDAQ:MSFT).
The rest of the Dow 10 dogs included three healthcare firms in fourth, fifth, and ninth places, Merck & Company (NYSE:MRK), Pfizer Inc. (NYSE:PFE), and Johnson & Johnson (NYSE:JNJ). Two basic materials firms, Dupont (NYSE:DD) was in seventh, and Chevron Corporation (NYSE:CVX) placed tenth. A lone industrial goods representative, General Electric (NYSE:GE) was eighth and wrapped up the five of nine market sectors on the top ten Dow dogs.
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 aggregate single share price and projected dividend total from $1000 invested in the top ten both dropped since February 2012. Price dropped 5% while divided sagged 2.6%. Since November single share price spiked 6.8% into overbought territory while dividend drooped away 4.4%.
The Dow dogs displayed an overbought condition nearly every period since February as aggregate single price exceeded dividend projected from $1k invested in each of the ten. The November period, showed a temporary reversal. However, as the Dow index entered 2013, dividend again exceeded price.
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 March 8, 2013 included firms representing six of nine market sectors. The top stock as revealed by Yahoo Finance data, was one of two in the service sector, RR Donnelley & Sons (NASDAQ:RRD), while Sysco Corporation (NYSE:SYY), the other service firm, placed sixth.
The balance of the top ten Power 25 included: two basic materials, Alliance Resource (ARLP), second dog, and Chevron Corp. (CVX) in ninth; technology firms were represented by Intel Corporation (INTC), third, and Microsoft Corporation (MSFT), seventh; healthcare firms, Novartis AG (NYSE:NVS) placed in fourth, and Johnson & Johnson (JNJ) slotted eighth; one utility, Nextera Energy (NYSE:NEE) ranked fifth; the lone industrial goods firm, Republic Services Inc. (NYSE: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 April was bullish as aggregate single share stock price for the top ten increased 4.4% while annual projected dividend from $1k invested in each of those stocks declined 0.3%
Since January aggregate single share price however dropped 5.4% but still surpassed dividend from $1k invested in each of the ten (which also dropped 4.4%) to extend an overbought condition for the index.
Russell Top 50
Top ten Russell 50 stocks by yield are shown as of March 8 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 March 8, five of nine market sectors were represented in the top ten Russell 50 stocks by yield. Top dog was the lone consumer goods firm, Altria Group (MO). AT&T (T), in second place was one of four technology firms in the top ten. Verizon Communications (VZ) was number four, Intel Corporation (INTC) placed at number five and , Microsoft Corp (MSFT) took number nine. The rest of the top ten Russell 50 pack included: one basic materials firm, ConocoPhillips (NYSE:COP) at number three; three healthcare firms placed sixth through eighth, Merck & Co. Inc. (MRK), Bristol Myers Squibb (NYSE:NMY), and Pfizer Inc. (PFE). The lone industrial goods dog stood at number ten, General Electric Co. (GE) to fill out the Russell top ten pack.
Since Russell 50 top ten aggregate single share prices moved to drop below annual projected dividends from $1,000 invested in each stock. A pattern of price exceeding dividends revealed an overbought condition until December/January when price broke below dividend.
Since January however, the bear pushed falling prices deeper as dividend also sagged. Dividend from 1k invested in each of these Russell 50 top ten stocks dropped 3% while aggregate single share price for the ten sank 9%.
The bear has forced the Russell 50 dogs to retreat out of their overbought status. So dividend from $1k invested in each of the ten Russell dogs further exceeded their aggregate single share price by March 8.
Carnevale Safe Havens Index
January 23, 2013, Seeking Alpha blogger, analyst, and creator of Fastgraphs, Chuck Carnevale, published Attractively Valued Blue-Chip Dividend Champions For Your Retirement Portfolios. He listed top 30 blue chip dividend growth stocks selected for safety and income based on seven quality criteria:
- Adequate Size of the Enterprise
- A Sufficiently Strong Financial Condition
- Earnings Stability
- Dividend Record
- Earnings Growth
- Moderate Price / Earnings Ratio
- Moderate Ratio of Price to Assets
Carnevale's Safe Haven top ten stocks by dividend yields as of March 8 included firms representing six of nine market sectors.
Five out of the ten safe haven dogs were utilities. Vectren Corporation (VVC) ranked first, followed by Consolidated Edison (ED), then WGL Holdings Inc. (NYSE:WGL) was third. Other utilities placed sixth and ninth: Atmos Energy Corp. (NYSE:ATO); UGI Corporation (NYSE:UGI).
Financial firm, Tompkins Financial Corporation (NYSEMKT:TMP) placed fourth. The lone consumer goods representative, Sunoco Products Co. (NYSE:SON) was fifth. The healthcare representative, Johnson & Johnson (JNJ) placed eighth. Remaining seventh and tenth slots were filled by service firms, Sysco Corporation (SYY) and Genuine Parts Co. (NYSE:GPC).
Since April 2012, the Carnevale safe haven collection of dogs has pursued a bullish course firming up an overbought status. Over the past year aggregate single share price for the top ten rose 20% while dividend from $1k invested in each of the top ten dropped 9.6%. As of March 8 price exceeded dividend by over 74%. Market action confirms Mr. Carnevale's supposition that the value of these stocks were in "future returns comprising... both capital appreciation and dividend income will be a function of each company's earnings growth rate, and the valuation you pay to invest in it at purchase." In other words, you'll pay a high price for a mediocre but safe dividend.
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 aggregate price for one share of each of the ten stocks (green points) by index. Grouped together the graphs display seven points of comparative gyrations for the ten indices described.
Dog Teams Assert Dividend Dominance
The following graph shows annual dividends projected from $1000 invested in each of ten stocks with the top yields in these ten "awesome" indices.
Annual Dividends Forecast from $1k Invested in each of 10 Top Yielding Stocks in the 10 CCCCCCCARD Indices
The chart plotted projected dividend amounts as of a specific purchase date at eight points since April. Only the Achievers within these ten indices did not show dividends dropping in bull market fashion since April.
In the past month only the contenders dividend increased.
Actionable Conclusion: Investor Relative Risk Ranked by Index
Projected dividend vs. price amounts from these nine indices and the Dow over the past seven periods displayed ten distinct divergence levels.
These indices were ranked for risk as of March 8, 2013 in the following manner: (1) Sum the single share prices of the top ten stocks on an index list. Then, (2) sum 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 ten indices rank themselves by risk as follows:
Actionable Conclusion Too: Analysts Forecast Dogs in CCCCCCCARD Indices To Reckon 4.2% to 23.7% Net Gains
Charts below for each index show comparative net gains as of March 8, 2013 and those projected to March 8, 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 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.
Contender Index Analysts See 23.7% Net Gains
CCC Combination Index Analysts See 18.4% Net Gains
Challenger Index Analysts See 13.8% Net Gains
Dividend Achievers 50 Index Analysts See 13% Net Gains
Carnevale Power 25 Index Analysts See 11.4% Net Gains
Champions Index Analysts See 9.8% Net Gains
Russell 50 Index Analysts See 8.7% Net Gains
DOW 30 Index Analysts See 7.7% Net Gains
Carnevale Super 29 Index Analysts See 6% Net Gains
Carnevale Safe 30 Index Analysts See 4.2% Net Gains
Actionable Conclusion Three: Index Price Upsides Calculated
Top ten dogs for this index component list were graphed below to show relative strengths by price as of March 8, 2013 and those projected to 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 price as reported by Yahoo Finance created the 2014 numbers for each index.
This became a graph of both upside and downside price potential since analyst estimates showed negative price gains for two indices. Thus annual gain estimates ranged from (6.21%) for the ten champion dogs and (1.99%) for the safe haven kennel to 9.98% for the ten CCC combo index dogs.
Actionable Conclusion Four: CCCCCCARD Top Profit Generating Dog Trades Revealed to Net 9.66% to 40.6%
The top profit generating dog trades one year from now were revealed by analysts mean target prices for each of ten indices. The list below is summarized from Yahoo Finance and IndexArb.com data for the Dow index.
Vector Group in the CCC Combo index netted a 40.60% net gain as of next January based on a mean target price set by 1 analyst.
Old Republic International from the Dividend AchieversTM 50 Index showed a 30.88% net gain based on mean target price set by 2 analysts.
Donnelley RR & Sons Inc. netted a 29.22% gain in Carnevale's Power 25 index top ten based on a mean target price set by 4 analysts.
Alliance Resource Partners netted a 28.52% annual gain in the Contenders top ten based on mean target pricing set by 8 analysts.
Pitney Bowes Inc. in the Champions Top 10 projected a 20.99% net gain based on mean target price set by 3 analysts.
Vanguard Natural Resources in the Challengers Top 10 projected a 20.55% price gain determined by the mean target price set by 11 analysts.
Microsoft Corp. netted a 19.25% gain in the Dow 30 index top ten next year based on a mean target price set by 30 analysts.
Connecticut Water Service netted a 17.47% gain in Carnevale's Super 29 index top ten as of March 8, 2014 based on a mean target price set by 1 analyst.
Merck & Co Inc netted a 14.57% annual gain in the Russell 50 Index top ten based on a mean target price set by 15 analysts.
UGI Corporation netted a 9.66% gain in Carnevale's Safe 30 index top ten as of January 2014 based on a mean target price set by 4 analysts.
As mentioned above, three to nine analysts was considered optimal for an accurate projected estimate.
These ten "awesome" indices and their component stocks 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 except as noted in this article are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.