This article reports results from David Fish's Dividend Contenders 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 Dividend Contenders Index top dog selections for April were disclosed.
Dog Metrics Ranked 30 Dividend Contenders Stocks by Yield
David Fish's March 28 Contenders list (from here) contained stocks distinguished by having paid increasing dividends for 10 to 24 years. Contenders stocks listed below were ranked by yields calculated as of April 4 to reveal the top ten. Price and dividend data was sourced from Yahoo.com.
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. (NYSE:VGR). One of six basic materials firms, Natural Resource Partners LP (NYSE:NRP) placed second. Other basic materials representatives placed third through sixth, and ninth: NuStar Energy LP (NYSE:NS); Buckeye Partners LP (NYSE:BPL); Alliance Resource Partners LP (NASDAQ:ARLP); TC Pipelines LP (NYSE:TCP); Kinder Morgan Energy Partners (NYSE:KMP).
The balance of the top ten contenders included one technology firm, Communications Systems Inc. (NASDAQ:JCS) in seventh, one industrial goods firm, WaterFurnace Renewable Energy Inc. (OTC:WFIFF) in eighth, and the only financials firm, Omega Healthcare Investors (NYSE:OHI), placed tenth.
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the top ten Dividend Contender 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: Bulls Pursued Contender & Dow Dogs
The Contenders top April dividend payers resumed a bullish course. In the past month Contenders top ten dog dividend dropped 1.9% while price rose early 2.7%.
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 Contender dogs are not all 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 cull bargains.
Wall Street Wizard Wisdom Weighed
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 7.65% Net Gain from Top 20 Dividend Contender Dogs In 2014
Top twenty dogs from David Fish's Dividend Contenders 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 5.8% lower dividend from $10K invested in this group while aggregate single share price was projected to increase nearly 3.3% 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 3 Dividend Contender Dogs to Net 6.2% to 25% By April 2014
Three probable profit generating trades revealed by Yahoo Finance for 2014 were:
Alliance Resource Partners LP (ARLP) netted $249.54 based on dividends plus mean target price estimate from eight analysts less broker fees;
Natural Resource Partners LP (NRP) netted $243.64 based on dividends plus the mean of annual price estimates from four analysts less broker fees;
Kinder Morgan Energy Partners (KMP) netted $51.97 based on a mean target price estimate from eleven analysts combined with projected annual dividend less broker fees.
The average net gain in dividend and price was over 18.5% on $1k invested in each of these three 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 3 stocks of the 20 top yielders (15%) showed significant upside potential.
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.
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.