Dow 30 Results from Yahoo Finance tallied as of market closing prices October 17, 2013 compared with analyst mean target price results one year hence showed six stocks flashing 15% to 22.6% price upsides. McDonald's Corp. (MCD) the Oakbrook, IL headquartered services firm with 10.4% showed the lowest upside of those six. Chevron Corp. (CVX) a San Ramon, CA based basic materials firm displayed 11% upside. International Business Machines (IBM) the Armonk, NY based technology firm carded 13.8%. Two firms, Coca Cola Co. (KO) in consumer goods from Atlanta, and JPMorgan Chase & Co. (JPM) a financial from New York, both topped 14%. Cisco Systems (CSCO) the San Jose, CA technology firm exhibited a near 16% price upside to lead these six.
The chart above used the one year mean target price set by brokerage analysts matched against October 17 closing price to compare ten Dow 30 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.
This article reports the Dow 30 Index as of the above date by projecting gain results one year hence. Seeking Alpha reader requests prompted this series of fourteen index-specific articles reporting dividend yield plus price upside results for these indices: Dow 30; S&P 500; S&P Aristocrats; Russell 1000; NASDAQ 100; NYSE International 100; Dividend Achievers; Champions; Contenders; Challengers; Carnevale's Power 25; Carnevale's Super 29; Barron's 15 Gems; Russell 2000.
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 October were disclosed step by step.
Dog Metrics Ranked Dow Stocks by Yield
McGraw Hill Financial, publisher of this index, states: "The Dow®, is a price-weighted measure of 30 U.S. blue-chip companies. The Dow® covers all industries with the exception of transportation and utilities, which are covered by the Dow Jones Transportation Average™ and Dow Jones Utility Average™.
While stock selection is not governed by quantitative rules, a stock typically is added to The Dow® only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors. Maintaining adequate sector representation within the indices is also a consideration in the selection process."
The September 17 Dow dogs included five of nine business sectors in the top ten by yield. Three of five technology firms showed the biggest dividend yields according to indexArb.com: AT&T (T); Verizon (VZ); Intel Corp (INTC). The fourth and fifth tech firms, Cisco Systems , and Microsoft (MSFT), placed seventh and tenth. Two healthcare firms ranked themselves in the fourth, and eighth slots: Merck (MRK), and Pfizer (PFE). The lone basic materials representative, Chevron Corp. , was fifth. The only services firm, McDonald's , placed sixth. The lone industrial goods firm, General Electric (GE) was ninth and rounded out the top ten Dow list.
Dividend vs. Price Results for Dow Top 10 Stocks
Relative strength for the top ten Dow industrial index stocks by yield was graphed below. Eight periods of historic projected annual dividend history from $1000 invested in the ten highest yielding stocks and the total single share price of those ten stocks created the data points for each period shown in blue for dividend and green for price.
Actionable Conclusion (1): Dow Dogs Get Muddled, Overbought Bliss Fades
Projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs dropped just 0.6% since September, while aggregate single share price swooned 11%, ending a brief bullish track. The Dow dogs overbought condition in which aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten shrank. The overhang was $198 or 53% in June, then shrunk to $153 or 41% in July, compressed to $125 or 33% in August then expanded to $161 or 43% for September, then shrank down to $111 or 30% for October.
To quantify the top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential and was added to the simple high yield "dog" metric used to sniff out bargains.
Actionable Conclusion Too (2): Wall St. Wizards Forecast 7.99% Net Gain from Top 20 Dow Dogs By 2014
Top twenty dogs from the Dow 30 Industrials were graphed below to show relative strengths by dividend and price as of October 17, 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 6.7% lower dividend from $10K invested as $1k in each dog of this group while aggregate single share price was projected to increase over 8% in the coming year. The forecast showed the Dow expanding on its overbought condition.
The number of analysts contributing to the mean target price estimate for each stock was noted in the next to the last column on the chart. Three to nine analysts was considered optimal for a valid projection 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 stock price movement opposite of market direction.
Actionable Conclusion (3): Ten Dow DiviDogs to Net 9.5% to 17.3% by October 2014
Six of the top yielding dividend Dow dogs were verified as top gainers for the coming year by analyst 1 year target prices. So this month the dog strategy as graded by wall street wizards is 60% accurate.
Ten probable profit generating trades from $1k invested in each revealed by Yahoo Finance and indexARB.com data for 2014 were:
Cisco Systems netted $172.94, based on dividend plus mean target price estimates from thirty-three analysts less broker fees. The Beta number showed this estimate subject to volatility 38% greater than the market as a whole.
JPMorgan Chase & Co. netted $158.08, based on dividends plus a mean target price estimate by thirty analysts less broker fees. The Beta number showed this estimate subject to volatility 52% greater than the market as a whole.
Coca Cola Co. netted $155.09 based on dividends plus a mean target price estimate from fourteen analysts less broker fees. The Beta number showed this estimate subject to volatility 74% less than the market as a whole.
International Business Machines netted $141.24 based on a mean target price estimate from twenty analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 28% less than the market as a whole.
Chevron Corp. netted $126.181 based on a mean target price estimate from nineteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 16% greater than the market as a whole.
McDonald's Corp. netted $117.50 based on target estimates from twenty-one analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 69% less than the market as a whole.
Merck & Co., Inc. netted $113.02 based on dividends plus the mean of annual price estimates from sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 44% less than the market as a whole.
Verizon Communications netted $108.57, based on dividends plus mean target price estimate from twenty-five analysts less broker fees. The Beta number showed this estimate subject to volatility 90% less than the market as a whole.
AT&T Inc netted $99.91 based on estimates from twenty-four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 72% less than the market as a whole.
Exxon Mobil Corp. (XOM) netted $94.68 based on dividends plus mean target price estimate from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 11% less than the market as a whole.
The average net gain in dividend and price was over 12.87% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 28% less than the market as a whole.
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.