This article reports results from the S&P 500 Index calculated as of April 1, 2013, projecting gain results one year hence. Seeking Alpha reader requests prompted this first installment in a new series of index-specific articles reporting dividend yield plus price upside results for 12 popular stock indices: Dow 30; S&P 500; Aristocrats; Russell 50; NASDAQ; NYSE International 100; Mergent Dividend Achievers; Champions; Contenders; Challengers; Carnevale's Power 25; Carnevale's Super 29.
The online investor tutorial site, Investor Glossary, recently offered this brief description of dividend dog methodology: "...[I]nvented to find the 10 stocks of the 30-stock Dow Jones Industrial Average with the highest yield (dividend/price) and invest equally in each, [t]he Dow dividend theory also requires that you repeat this process once a year."
Below, the Arnold S&P 500 Index top dog elections for April were disclosed.
Dog Metrics Ranked S&P 500 Stocks by Yield
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 the U.S."
Just three of nine sectors placed top dogs in this index for April. Top dog Windstream Corp (WIN) was one of four technology firms in the top ten. The other technology firms were Frontier Communications (FTR), third; CenturyLink Inc. (CTL), fourth; Garmin (GRMN), eighth. Pitney Bowes Inc (PBI) in second place was one of three consumer goods firms. The remaining consumer goods dogs were Lorillard (LO) in sixth, and Reynolds American Inc. (RAI) in seventh place. Three Utilities filled up the remaining five, nine, and ten slots: Exelon Corp. (EXC); First Energy Corp. (FE); Entergy Corp. (ETR) to complete the S&P 500 top ten dogs.
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the top ten S&P 500 dogs by yield as of market close 4/4/2013 compared to those of the Dow. Historic projected annual dividend history from $1000 invested in each of the ten highest yielding stocks and the total single share prices of those ten stocks created the data points shown in green for price and blue for dividend.
Actionable Conclusion: S&P 500 & Dow Dogs Run With Bulls
The April S&P 500 collection of dividend payers continued a bullish price course set since November 2012. Aggregate dividend from $10k invested in each of the top ten S&P 500 stocks dropped at a 16% rate since November, while total single share price popped up over 56% in that period. In the past month, S&P 500 top ten dog dividend dropped 10.6% while price rose 13%.
In the Dow dogs, meanwhile annual dividend from $1k invested in each of the ten dropped over 1.1% since March, while aggregate single share price jumped over 5.3%. The Dow dogs extended their overbought condition as aggregate single share price of the ten continued to exceed projected annual dividend from $1k invested in each of the ten by over $121 or 32%.
Since S&P 500 index dogs are not the blue chip high quality equivalents of the Dow list, (though Dow dogs are 10% of the top 30 S&P 500 list) an additional gauge of upside potential was added to the simple high yield metric used to detect bargains.
Wall Street Wizards Weighed In
One year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment were used to compare ten stocks showing the highest upside price potential into 2014 out of 20 selected by yield. The number of analysts providing price estimates was noted after the name for each stock. Three to nine analysts was considered optimal for a valid mean target price estimate.
Actionable Conclusion Two: Analysts Calculate Over 10% Net Gain from Top 20 S&P 500 Dogs In 2014
Top 20 dogs from the S&P 500 index were graphed below to show relative strengths by dividend and price as of April 1, 2013, and those projected by analyst mean price target estimates to the same date in 2014.
A hypothetical $1000 investment in each equity was divided by the current share price to find the number of shares purchased. The shares number was then multiplied by projected annual per share dividend amounts to find the dividend return. Thereafter, the analyst mean target price was used to gauge the stock price upsides and net gains including dividends less broker fees as of 2014.
Historic prices and actual dividends paid from $1000 invested in the ten highest yielding stocks and the aggregate single share prices of those 20 stocks divided by 2 created data points for 2013. Projections based on estimated increases in dividend amounts from $1000 invested in the 20 highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 2 created the 2014 data points green for price and blue for dividends.
Yahoo projected a 5.5% lower dividend from $10K invested in this group while aggregate single share price was projected to increase over 2.2% in the coming year. 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 valid estimate.
Actionable Conclusion Three: Analysts Forecast 8 S&P 500 DiviDogs to Net 6% to 32.5% By April 2014
Eight probable profit generating trades revealed by Yahoo Finance for 2014 were:
Windstream netted $325.50, based on dividends plus a mean target price estimate by thirteen analysts less broker fees;
Frontier Communications netted $275.17 based on dividends plus mean target price estimate from twelve analysts less broker fees;
Pitney Bowes netted $262.94 based on a mean target price estimate from four analysts combined with projected annual dividend less broker fees;
Garmin netted $212.99, based on dividend plus mean target price estimates from seven analysts less broker fees;
Lorillard netted $125.08 based on estimates from nine analysts plus dividends less broker fees;
CenturyLink netted $90.57 based on dividends plus the mean of annual price estimates from sixteen analysts less broker fees;
Altria Group (MO) netted $71.76 based on dividends plus mean target price estimate from twelve analysts less broker fees;
Reynolds American netted $60.91 based on a mean target price estimate from nine analysts combined with projected annual dividend less broker fees.
The average net gain in dividend and price was over 17.8% on $1k invested in each of these eight dogs.
The stocks listed above were suggested only as decent starting points for your index dog dividend stock purchase research process. These were not recommendations.
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.