Results from David Fish's Dividend Challengers Index calculated as of July 30, 2013 projecting gains one year hence showed EV Energy Partners LP (NASDAQ:EVEP), the oil and natural gas properties master limited partnership, with a 19.52% price upside at the top of the chart.
The chart above used one year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment to compare four Challengers Index 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.
Results for the Challengers Index were one of fourteen in a series of index-specific articles devoted to dividend yield and price upside results. Prompted by Seeking Alpha reader requests, the series has supplied results for these stock indices: Dow 30; Barron's 15 Gems; Russell 2000; S&P 500; S&P Aristocrats; Russell 1000; NASDAQ 100; NYSE International 100; Mergent Dividend Achievers; Champions; Contenders; Challengers; Carnevale's Power 25; Carnevale's Super 29.
This report presumed yield (dividend / price) dividend dog methodology applied to any index and compared that index side by side with the Dow. Below, are the Arnold Dividend Challengers Index top dog selections for July were disclosed step by step.
Dog Metrics Filtered Dividend Challengers
David Fish's June 28 Challengers list (from here) contained stocks distinguished by having paid increasing dividends for 5 to 9 straight years. Dividend challenger stocks listed below were ranked by yields calculated as of July 30 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 four of nine market sectors. The top stock, Dynex Capital Inc.(NYSE:DX), was one of three financials. PennantPark Investment Corp. (NASDAQ:PNNT), completed the top three, while a third financial firm, Triangle Capital Corp. (NYSE:TCAP) placed ninth. Second dog, Navios Maritime Partners LP (NYSE:NMM), was one of two firms from the services sector. The other services firm, StoneMor Partners LP (NASDAQ:STON), was in fourth place.
Four basic materials companies took all but two of the of the bottom five places: Vanguard Natural Resources LLC (NYSE:VNR); NuStar GP Holdings LLC (NYSE:NSH); Crestwood Midstream Partners LP (NYSE:CMLP) placed five through seven, while EV Energy Partners LP placed tenth. The lone utilities firm, AmeriGas Partners LP (NYSE:APU) placed eighth to complete the top ten contenders dogs list.
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 7/30/2013 compared to those of the Dow. Historic projected annual dividend from $1000 invested in each of the ten highest yielding stocks and the total single share price of those ten stocks created the data points shown in green for price and blue for dividend.
Actionable Conclusion (1): Challengers Bullish as Dow Dogs Back Off
Dividend challengers resumed a bullish upward price course established since November, 2012. Aggregate single share price of the ten Challengers popped up 12% since June. Dividend from $10k invested in each of those top ten dogs dropped 3% for that period.
For the Dow dogs, meanwhile, annual dividend from $1k invested in each of the top ten increased just 0.03% since June, while aggregate single share price dropped over 8%. Dow dogs decreased their overbought condition in which aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten by over $198 or 53% in June was shrunk to $152.51 or 41% in July.
Since Contender dogs may not be all the blue chip high quality equivalents of the Dow list, and also include utilities, an additional gauge of upside potential was added to the simple high yield metric used to find bargains.
Actionable Conclusion Two (2): Wall Street Wizard Wisdom Worked Weighing 11.5% Net Gain from Top 20 Dividend Challengers Index Dogs By 2014
Top twenty dogs from David Fish's Dividend Challengers index were graphed below to show relative strengths by dividend and price as of July 30, 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 4% lower dividend from $10K invested in this group ($1k each) while aggregate single share price was projected to increase nearly 5% 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.
A beta (risk) ranking for each analyst rated stock was provided in the far right column on the above chart. A beta of 1 meant the stock's price would move with the market. Less than 1 showed lower than market movement. Higher than 1 showed greater than market movement. A negative beta number indicated the degree of a stocks movement opposite of market direction.
Actionable Conclusion (3): Analysts Forecast 10 Dividend Challenger Dogs to Net 10% to 24.8% By June 2014
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
- EV Energy Partners LP netted $248.19 based on dividends plus mean target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 43% less than the market as a whole.
- Vanguard Natural Resources LLC netted $207.50 based on dividends plus mean target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 10% more than the market as a whole.
- StoneMor Partners LP netted $184.01 based on dividends plus a mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 41% less than the market as a whole.
- Transmontaigne Partners (NYSE:TLP) netted $167.18, based on dividend plus mean target price estimates from three analysts less broker fees. The Beta number showed this estimate subject to volatility 10% less than the market as a whole.
- Crestwood Midstream Partners LP netted $219.95, based on dividends plus a mean target price estimate by eight analysts less broker fees. The Beta number showed this estimate subject to volatility 49% less than the market as a whole.
- NuStar GP Holdings LLC netted $140.78 based on a mean target price estimate from seven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.
- Exterran Partners LP (EXLP) netted $122.20 based on a mean target price estimate from seven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 2% more than the market as a whole.
- Dynex Capital Inc. netted $121.68 based on estimates from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 350% less than the market as a whole.
- Targa Resources Partners (NYSE:NGLS) netted $112.75 based on dividends plus mean target price estimate from fourteen analysts less broker fees. The Beta number showed this estimate subject to volatility 13% less than the market as a whole.
- Williams Partners LP (NYSE:WPZ) netted $101.85 based on estimates from twelve analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 49% less than the market as a whole.
The average net gain in dividend and price was over 15.6% on $1k invested in each of these ten dogs. This gain estimate was subject to average volatility 25% less than the market as a whole.
The above net gain estimates did not factor-in any tax problems resulting from distributions. 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.
Disclosure: I am long DD, GE, INTC, 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.
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.