Seeking Alpha
Dividend investing, growth, momentum
Profile| Send Message| ()  

This article reports results from JPMorgan New Sovereigns Stocks calculated as of April 22, 2013 projecting gain results one year hence. Seeking Alpha reader requests prompted prior installments of a 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. This is a farewell installment for a thirteenth index.

The online investor tutorial, 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 JPMorgan New Sovereigns Index top dog selections for April were disclosed.

Dog Metrics Ranked JPMorgan New Sovereigns Index Stocks by Yield

Thomas Lee, an equity strategist with J.P. Morgan, July 22, 2011, published a note titled "Corporates are the New Sovereigns: 22 stocks to own around sovereign default." The Barron's article covering Lee's announcement defined a Sovereign as an entity which can print money or tax at will. Lee's report listed 22 corporate stocks that show less risk of default than the sovereign U.S. government, based on five-year credit spreads, free cash flow yields exceeding bond yields, ratings of overweight by J.P. Morgan, and showing upside to their target prices at that time.

The biggest yields for ten April JPM Sovereigns included firms from six of nine business sectors. Industrial goods firms captured two of five top slots: Lockheed Martin Corp. (LMT), was top dog while, Raytheon Inc. (RTN) was fourth seeded. Two basic materials firms took second and third, Conoco Phillips (COP), and Freeport-McMoRan (FCX). The lone healthcare firm, Merck (MRK) placed fifth. A single technology firm, Texas Instruments (TXN) placed sixth. Two services firms placed seventh and eighth in the bottom five of these top ten dogs: United Parcel Service (UPS); Norfolk Southern Corp. (NSC). Finally two consumer goods firms took the ninth and tenth slots, Coca Cola Co. (KO), and PepsiCo Inc. (PEP), to round out the top ten April new sovereign dogs.

Thomas Lee's full list of 22 stocks had two basic materials, three consumer goods, one conglomerate, no financial, four healthcare, four industrial goods, five service, three technology, and no utilities representing seven of nine Yahoo market sectors.

Dividend vs. Price Results Compared to Dow Dogs

Below is a graph of the relative strengths of the top ten JPM Sovereigns dogs by yield as of market close 4/22/2013 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.


(Click to enlarge)

Actionable Conclusion: Bulls Pursued Both JPM Sovereign & Dow Dogs

The JPM Sovereigns top April dividend payers resumed a bullish course. In the past month sovereigns top ten dog dividend dropped .85% while price rose nearly 7.4%.

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%.

Both Sovereigns and Dow dogs extended their overbought conditions as aggregate single share price of the ten continued to exceed projected annual dividend from $1k invested in each of the ten.

Since JPM Sovereign dogs attempt to achieve 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 7.4% Net Gain from Top 20 JPM Sovereign Dogs In 2014

Top twenty dogs from the JPM Sovereign index were graphed below to show relative strengths by dividend and price as of April 22, 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.


(Click to enlarge)

Yahoo projected a 3.2% lower dividend from $10K invested in this group while aggregate single share price was projected to increase nearly 3.1% 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 JPM Sovereign Dogs to Net 5.2% to 39.3% By April 2014

Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:


(Click to enlarge)

  • Freeport-McMoran Cp & Gld netted $393.74 based on dividends plus mean target price estimate from fourteen analysts less broker fees;
  • ConocoPhillips netted $138.53, based on dividends plus a mean target price estimate by sixteen analysts less broker fees;
  • CSX Corp. (CSX) netted $120.34 based on dividends plus mean target price estimate from twenty-three analysts less broker fees;
  • United Technologies (UTX) netted $105.76 based on a mean target price estimate from twenty-one analysts combined with projected annual dividend less broker fees;
  • United Parcel Service netted $96.31, based on dividend plus mean target price estimates from twenty analysts less broker fees;
  • Coca Cola Co. netted $90.84 based on estimates from thirteen analysts plus dividends less broker fees;
  • Abbott Laboratories (ABT) netted $81.04 based on dividends plus the mean of annual price estimates from seventeen analysts less broker fees;
  • Covidien plc (COV) netted $77.74 based on dividends plus mean target price estimate from nineteen analysts less broker fees;
  • Norfolk Southern Corp. netted $77.18 based on estimates from twenty-four analysts plus dividends less broker fees;
  • Honeywell International Inc. (HON) netted $51.90 based on a mean target price estimate from twenty-three analysts combined with projected annual dividend less broker fees.

The average net gain in dividend and price was over 12.2% on $1k invested in each of these ten 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.

Following JPM Sovereign Dog Tracks July 2011 to April 2013

An update was plotted below to reveal book value gains fo9r the top twenty JPM Sovereigns from conception to April 2013.

The charts below were produced by adding accumulated dividends since July 2011 to the stock price each month multiplied by the number of shares purchased for $1k in July to reveal monthly book values for the twenty JPM Sovereign DiviDogs.

Quarterly Gyrations of JPM Sovereigns Book Values


(Click to enlarge)

Book value gyrations twenty JPM Sovereign dogs from July 22, 2011 to April 22, 2013 show nineteen of the twenty above their initial $1k purchase cost. The one laggard is Freeport-McMoran Cp & Gld which has sagged nearly 45% in the past twenty-one months. A 24% dividend July 2012 five of the twenty JPM Sovereign dogs were underwater with book values below their $1k purchase price.

Because JPMorgan Sovereigns Index constituents showed as most overbought of fifteen indices reported throughout 2012 and into 2013, this may be their last showing. With the exception of FCX, these dogs appear to be too well fed and pampered to move very fast or far from current valuations. Perhaps an annual update article will be forthcoming.

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.

Source: 10 JPMorgan New Sovereign Dogs Bare 5.2% To 39.3% Net Gains In April