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

This article reports the Dow 30 Index as of June 14, 2013 by projecting gain results one year hence. Seeking Alpha reader requests prompted this series of index-specific articles reporting dividend yield plus price upside results for twelve popular stock indices: Dow 30; S&P 500; S&P Aristocrats; Russell 50; NASDAQ; NYSE International 100; Mergent Dividend Achievers; Champions; Contenders; Challengers; Carnevale's Power 25; Carnevale's Super 29.

Investor Glossary summarized dividend dog methodology thus: "...[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 Dow 30 Index top dog selections for June were disclosed step by step.

Dog Metrics Ranked Dow Stocks by Yield

CME Group, one of three publishers of this index, states, "The Dow Jones Industrial Average (DJIA) is a price-weighted index of 30 blue-chip U.S. companies representing nine economic sectors including financial service, technology, retail, entertainment and consumer goods. The leadership position of the component stocks in the DJIA tends to result in an extremely high correlation of the DJIA to broader U.S. indexes, such as the S&P 500 Index providing additional opportunities."

The June 14 Dow dogs included five of nine business sectors in the top ten by yield. Three technology firms showed the biggest dividend yields according to indexArb.com: AT&T (T); Intel Corp (INTC); Verizon (VZ). Three healthcare firms ranked themselves in the fourth, seventh, and tenth slots: Merck (MRK), Pfizer (PFE), and Johnson & Johnson (JNJ). The lone industrial goods firm, General Electric (GE) placed fifth. Two basic materials firms placed sixth and eighth: Dupont (DD) and Chevron Corp. (CVX). The only services firm, McDonald's (MCD) rounded out the top ten Dow list in ninth place.

Actionable Conclusion (1): Dow Dogs Charge into Overbought Bliss

Projected annual dividend from $1k invested in each of the top ten Dow dogs dropped over 2.2% since April, while aggregate single share price popped up over 13.6%. Dow dogs increased their overbought condition as aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten by over $198 or 53%.

This Dogs of the Index strategy, popularized by Michael B. O'Higgins in the book "Beating The Dow" (HarperCollins, 1991), revealed how high yielding stocks whose prices increased (and whose dividend yields therefore decreased) could be sold off once a year to sweep gains and reinvest the seed money into higher yielding stocks in the same index. Prior to the publication of O'Higgins book, Dow dogs were known by some market watchers as "fallen angels."

To add some confidence to the top dog rankings, an additional gauge of upside potential was added to the simple high yield metric used to sniff out 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 (2): Analysts Anticipate Over 7.5% Net Gain from Top 20 Dow Dogs In 2014

Top twenty dogs from the Dow 30 Industrials 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 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 6.3% lower dividend from $10K invested in this group while aggregate single share price was projected to increase over 8% 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 chart. Three to nine analysts was considered optimal for a valid projection estimate.

Actionable Conclusion (3): Analysts Forecast 10 Dow DiviDogs to Net 9.5% to 16.4% by June 2014

Ten probable profit generating trades revealed by Yahoo Finance and indexARB.com data for 2014 were:


(Click to enlarge)

  • Caterpillar Inc. (CAT) netted $163.98, based on dividends plus a mean target price estimate by twenty-one analysts less broker fees;
  • Coca Cola Co. (KO) netted $154.52 based on dividends plus a mean target price estimate from fourteen analysts less broker fees;
  • The Travelers Co's Inc. (TRV) netted $123.52 based on a mean target price estimate from nineteen analysts combined with projected annual dividend less broker fees;
  • Wal-Mart Stores (WMT) netted $115.17, based on dividend plus mean target price estimates from twenty analysts less broker fees;
  • Chevron Corporation netted $114.69, based on dividends plus mean target price estimate from twenty-one analysts less broker fees;
  • General Electric netted $100.32 based on estimates from fifteen analysts plus dividends less broker fees;
  • McDonald's Corp. netted $99.69 based on dividends plus mean target price estimate from twenty-three analysts less broker fees;
  • Procter & Gamble (PG) netted $97.88 based on a mean target price estimate from eighteen analysts combined with projected annual dividend less broker fees;
  • Merck & Co., Inc. netted $95.79 based on dividends plus the mean of annual price estimates from fifteen analysts less broker fees;
  • United Technologies (UTX) netted $95.67 based on target estimates from twenty-one analysts plus dividends less broker fees.

The average net gain in dividend and price was over 11.6% 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.

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 Top Dow Dogs Chase 9.5% To 16.4% Net Gains For June