Results from the S&P 500 Index as of June 14, 2013, are reported in this article contrasting recent stock prices and dividends with those projected one year out. 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; and 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. This report presumed dividend dog methodology applied to any index and compared that index side by side with the Dow."
Below, the Arnold S&P 500 Index top dog selections for May/June were disclosed step by step.
Dog Metrics Ranked S&P 500 Stocks by Yield
McGraw Hill, publisher of the S&P 500 Index states "Standard & Poor's strives to provide investors who want to make better informed investment decisions with market intelligence in the form of credit ratings, indices, investment research and risk evaluations and solutions." The company states that the "index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S."
Just three of nine sectors placed top dogs in this index for May and June. Top dog Windstream Corp. (WIN) was one of four technology firms in the top ten. The other technology firms were Frontier Communications (FTR), second; CenturyLink Inc. (CTL), third; Garmin (GRMN), sixth. Goodyear Tire & Rubber Preferred (GT) in fourth place was one of three consumer goods firms. The remaining consumer goods dogs were Reynolds American Inc. (RAI) in eighth, and Pitney Bowes Inc. (PBI) in ninth place. Three Utilities filled up the remaining five, seven, and ten slots: FirstEnergy Corp. (FE); Pepco Holdings, Inc. (POM); TECO Energy (TE) and completed the S&P 500 top ten dogs.
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the top ten S&P 500 dogs by yield as of market close 6/14/2013 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 (1): S&P 500 Dogs Retreated as Dow Dogs Chased Bulls
The May/June S&P 500 collection of dividend payers reversed an upward price course set since November, 2012, as total single share price dropped off 16% after April. Aggregate dividend from $10k invested in each of the top ten S&P 500 stocks also dropped but at a 23% rate since November, including 8% in the past month.
For the Dow dogs, meanwhile, projected annual dividend from $1k invested in each of the top ten 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%.
Since S&P 500 index dogs are not the blue chip high quality equivalents of the Dow list, (though Dow dogs are 10% of the top 30 S&P 500 list) an additional gauge of upside potential was added to the simple high-yield metric used to detect 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 were considered optimal for a valid mean target price estimate.
Actionable Conclusion Two (2): Analysts Calculate Over 10.1% Net Gain from Top 20 S&P 500 Dogs In 2014
Top twenty dogs from the S&P 500 index 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 $1k 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 $1k 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 $1k 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 6.25% lower dividend from $10K invested in this group while aggregate single share price was projected to increase over 5.6% 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 were considered optimal for a valid estimate.
Actionable Conclusion Three (3): Analysts Forecast 10 S&P 500 DiviDogs to Net 9.2% to 22.2% By June 2014
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
- Windstream netted $222.68, based on dividends plus a mean target price estimate by thirteen analysts less broker fees;
- Pitney Bowes netted $198.59 based on a mean target price estimate from four analysts combined with projected annual dividend less broker fees;
- Frontier Communications netted $176.68 based on dividends plus mean target price estimate from fourteen analysts less broker fees;
- PPL Corporation (PPL) netted $172.58 based on dividends plus mean target price estimate from fourteen analysts less broker fees;
- FirstEnergy Corp. netted $165.13 based on a mean target price estimate from fifteen analysts combined with projected annual dividend less broker fees.
- Garmin netted $139.25, based on dividend plus mean target price estimates from seven analysts less broker fees;
- Ameren Corporation (AEE) netted $108.45 based on estimates from eight analysts plus dividends less broker fees;
- Southern Company (SO) netted $103.62 based on estimates from fourteen analysts plus dividends less broker fees; and
- CenturyLink netted $92.10 based on dividends plus the mean of annual price estimates from eighteen analysts less broker fees.
The average net gain in dividend and price was over 15.2% 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.
Disclosure: I am long DD, GE, INTC, JNJ, MCD, 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.