Results from David Fish's Dividend Contenders Index constituents listed as of market closing prices October 26 were compared to analyst mean target price projections one year hence. The resulting chart from that data shown below displayed three stocks exhibiting 10.2% to 15.6% price upsides. W.P. Carey Inc. (NYSE:WPC) the New York based diversified REIT from the financials sector with 10.23% showed the lowest upside of those three. Plains All American Pipeline LP (NYSE:PAA) the Houston based oil & gas pipeline firm from the basic materials sector with 14.94% showed the middle-most upside. Natural Resource Partners (NYSE:NRP) the Houston, TX based industrial metals & minerals (COAL) industry firm from the basic materials sector exhibited a 15.61% price upside to lead the index. Six additional contender dogs showed 2.4% to 8% upsides.
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 nine Contenders 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 reported results for the Contenders Index as 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; 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; Russell 2000.
The report presumed yield (dividend / price) dividend dog methodology applied to any index and compared that index side by side with the Dow. Below, the Arnold Dividend Contenders Index top dog selections for October were disclosed step by step.
Dog Metrics Ranked Dividend Contenders Index Stocks by Yield
David Fish's September Contenders list (from here) contained stocks distinguished by having paid increasing dividends for 10 to 24 years. Contenders stocks listed below were ranked by yields calculated as of October 26 to reveal the top ten. Price and dividend data was sourced from Yahoo.com.
Four of nine Yahoo Finance market sectors were represented in the top ten contenders dog list below. Top two dogs were two of six basic materials firms: Natural Resource Partners LP ; NuStar Energy LP (NYSE:NS). The other basic materials firms placed fourth through seventh: Kinder Morgan Energy Partners (NYSE:KMP); TC Pipelines LP (NYSE:TCP); Buckeye Partners LP (NYSE:BPL); Alliance Resource Partners LP (NASDAQ:ARLP).
The balance of the top ten contenders included the lone consumer goods stock, Vector Group Ltd. (NYSE:VGR) in third place. One technology firm, Communications Systems Inc. (NASDAQ:JCS) placed eighth; two financials firms, Omega Healthcare Investors (NYSE:OHI), in ninth, and W.P. Carey Inc. in tenth completed the top yielding ten contenders dog show.
Dividend vs. Price Results Compared to Dow Dogs
The graph below shows relative strengths of the top ten Dividend Contender dogs by yield as of market close 9/26/2013 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): Bullish Contenders & Dithering Dow Dogs
Contenders top October dividend payers showed a bullish course. In the past month the contenders top ten dog dividend dropped nearly 4.3% while price jumped up over 10%.
For the Dow dogs, meanwhile, 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 Wonk 8.8% Net Gain from Top 20 Dividend Contenders Index Dogs In 2014
Top twenty dogs from David Fish's Dividend Contenders index were graphed below to show relative strengths by dividend and price as of October 26, 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 2.5% lower dividend from $10K invested in this group while aggregate single share price was projected to increase nearly 3.3% in the coming year. 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 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 9 Dividend Contender Dogs to Net 5% to 24% By October 2014
Four of the nine top dividend yielding Contender dogs were verified as being among the nine gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy as graded by Wall St. wizards is 44% accurate.
The nine probable profit generating trades revealed by Yahoo Finance for 2014 were:
Natural Resource Partners LP netted $242.04 based on dividends plus the mean of annual price estimates from four analysts less broker fees. The Beta number showed this estimate subject to volatility 34% more than the market as a whole.
Plains All American Pipeline netted $174.24 based on dividends plus mean target price estimate from twenty analysts less broker fees. The Beta number showed this estimate subject to volatility 29% less than the market as a whole.
W.P. Carey Inc. netted $133.34 based on dividends plus the mean of annual price estimates from three analysts less broker fees. The Beta number showed this estimate subject to volatility 22% less than the market as a whole.
Kinder Morgan Energy Partners netted $119.97 based on a mean target price estimate from thirteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 49% less than the market as a whole.
Urstadt Biddle Properties (NYSE:UBA) netted $110.78 based on a mean target price estimate from three analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 12% more than the market as a whole.
Alliance Resource Partners netted $93.97 based on dividends plus mean target price estimate from six analysts less broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole.
PPL Corp. (NYSE:PPL) netted $92.05 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 86% less than the market as a whole.
Southern Company (NYSE:SO) netted $73.74 based on dividends plus mean target price estimate from sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 97% less than the market as a whole.
National Retail Properties (NYSE:NNN) netted $50.17 based on dividends plus mean target price estimate from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 65% less than the market as a whole.
The average net gain in dividend and price was over 12% on $1k invested in each of these nine dogs. This gain estimate was subject to average volatility 34% 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.
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.
Disclosure: I am long 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.