This article reports results from the Mergent Dividend Achievers 50 Index calculated as of April 4, 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 twelve popular stock indices: Dow 30; S&P 500; Aristocrats; Russell 1000; NASDAQ; NYSE International 100; Mergent Dividend Achievers; Champions; Contenders; Challengers; Carnevale's Power 25; Carnevale's Super 29.
An online tutorial for investors, 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 Mergent Dividend Achievers 50 Index top dog selections for April were disclosed.
Dog Metrics Ranked 30 of Dividend Achievers 50 Stocks by Yield
The Mergent 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 April 4 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 (NYSE:PBI) was first, while Vector Group Ltd. (NYSE: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, sixth, and eighth places: Old Republic International (NYSE:ORI); People's United Financial (NASDAQ:PBCT); United Bankshares, Inc. (NASDAQ:UBSI). One industrial goods concern, (NYSE:LMT) was seventh. The lone technology firm, AT&T Inc. (NYSE:T), took ninth place. One utility firm, PPL Corporation (NYSE:PPL), completed the top ten Dividend AchieversTM in tenth position.
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the top ten Mergent Dividend AchieversTM 50 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: Dividend AchieversTM 50 & Dow Dogs Go Bullish
Mergent Dividend AchieversTM 50 top April dividend payers resumed a bullish price course set since Spring, 2012. In the past month Mergent Dividend AchieversTM 50 top ten dog dividend dropped 1.9% while price rose 3.4%.
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 Mergent Dividend AchieversTM 50 dogs are not the blue chip high quality equivalents of the Dow list, an additional gauge of upside potential was added to the simple high yield metric used to find bargains.
Wall Street Wizard Wisdom Worked
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 Too: Analysts Calculate Over 9.92% Net Gain from Top 20 Dividend AchieversTM 50 Dogs In 2014
Top twenty dogs from the Mergent Dividend AchieversTM 50 index were graphed below to show relative strengths by dividend and price as of April 4, 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 twenty stocks divided by 2 created data points for 2013. Projections based on estimated increases in dividend amounts from $1000 invested in the twenty 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 4% lower dividend from $10K invested in this group while aggregate single share price was projected to increase over 1.2% 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 4 Dividend Achievers 50 Dogs to Net 7.3% to 25.7% By April 2014
Four probable profit generating trades revealed by Yahoo Finance for 2014 were:
- Pitney Bowes Inc netted $257.62 based on dividends plus mean target price estimate from four analysts less broker fees;
- Meredith Corp. (NYSE:MDP) netted $151.80 based on dividends plus the mean of annual price estimates from five analysts less broker fees;
- ConocoPhillips (NYSE:COP) netted $108.40 based on dividends plus mean target price estimate from sixteen analysts less broker fees;
- Altria Group Inc netted $73.00 based on a mean target price estimate from twelve analysts combined with projected annual dividend less broker fees.
The average net gain in dividend and price was over 10.76% on $1k invested in each of these four 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. As a measure of broker analyst confidence in this index, only 4 stocks of the 20 top yielders (20%) showed any upside potential.
Disclosure: I am long DD, GE, INTC, JNJ, MCD, MSFT, PFE, T, VZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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.