This article reports results from David Fish's Dividend Challengers 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.
The 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 Challengers Index top dog selections for April were disclosed.
Dog Metrics Ranked 29 Dividend Challengers Stocks by Yield
David Fish's March 28 Challengers list (from here) distinguished companies that have paid higher dividends for 5 to 9 straight years. Dividend challenger 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.
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 (NYSE:NMM), was one of two in the services sector. The other services firm, StoneMor Partners LP (NYSE:STON), was in fourth place. Two financials completed the top three: Dynex Capital Inc. (NYSE:DX); PennantPark Investment Corp. (NASDAQ:PNNT). Six basic materials companies took all the rest of the top ten places: Vanguard Natural Resources LLC (NASDAQ:VNR); Crestwood Midstream Partners LP (NYSE:CMLP); Exterran Partners LP (NASDAQ:EXLP); Enbridge Energy Partners LP (NYSE:EEP); Boardwalk Pipeline Partners LP (NYSE:BWP); AmeriGas Partners LP (NYSE:APU).
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the top ten Dividend Challenger 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: Challengers Neutral as Dow Dogs Chase Bulls
The April dividend challengers sent a neutral mixed message. A (bullish) upward price course continued since November, 2012 as price pushed up 6.5% in the past month. However, aggregate dividend from $10k invested in each of those top ten dogs (bearishly) jumped 1.2% last month instead of dropping.
Dow dogs, meanwhile, saw annual dividend from $1k invested in each of the ten drop over 1.1% since March, as 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 Challenger 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 Wrought
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 12.26% Net Gain from Top 20 Dividend Challenger Dogs In 2014
Top twenty dogs from David Fish's Dividend Challengers 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 6.1% lower dividend from $10K invested in this group while aggregate single share price was projected to increase nearly 7.4% 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 10 Dividend Challenger Dogs to Net 10.9% to 29.4% By April 2014
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
EV Energy Partners LP (NASDAQ:EVEP) netted $294.28 based on dividends plus mean target price estimate from eleven analysts less broker fees;
Crestwood Midstream Partners LP (CMLP) netted $234.39, based on dividends plus a mean target price estimate by nine analysts less broker fees;
Vanguard Natural Resources LLC (VNR) netted $225.85 based on dividends plus mean target price estimate from twelve analysts less broker fees;
National CineMedia Inc. (NASDAQ:NCMI) netted $176.45 based on a mean target price estimate from ten analysts combined with projected annual dividend less broker fees;
PennantPark Investment Corp. (PNNT) netted $174.50, based on dividend plus mean target price estimates from twelve analysts less broker fees;
Williams Partners LP (NYSE:WPZ) netted $151.30 based on estimates from fifteen analysts plus dividends less broker fees;
Navios Maritime Partners (NMM) netted $147.28 based on dividends plus the mean of annual price estimates from seven analysts less broker fees;
Dynex Capital Inc. (DX) netted $133.26 based on dividends plus mean target price estimate from six analysts less broker fees;
Enbridge Energy Partners LP (EEP) netted $117.94 based on estimates from fifteen analysts plus dividends less broker fees;
Exterran Partners LP (EXLP) netted $109.78 based on a mean target price estimate from seven analysts combined with projected annual dividend less broker fees.
The average net gain in dividend and price was over 17.6% on $1k invested in each of these ten dogs.
The above net gain estimates did not factor-in any tax problems resulting from distributions (not dividends and K-1s) from MLPs and any possible re-capture tax problems/rates that could suck projected gains out of some of these estimates at the regular tax bracket rate and not capital gain rates. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.
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.
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.