3 Dogs Of The Dow Dog 11% To 24% November Upsides

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Includes: CSCO, CVX, INTC, JPM, MSFT
by: Fredrik Arnold

Dow 30 Results from Yahoo Finance tallied as of market closing prices November 14, 2013 compared with analyst mean target price results one year hence showed three stocks flashing 10.97% to 24.05% price upsides. Chevron Corp. (NYSE:CVX) a San Ramon, CA based basic materials firm displayed 11% upside to show the lowest upside of those three. JPMorgan Chase & Co. (NYSE:JPM) the NY based financial firm carded 14.74% to claim the middle ground. Cisco Systems (NASDAQ:CSCO) the San Jose, CA technology firm exhibited a 24.05% price upside to lead these three. Apparently analyst optimism for Cisco still runs counter to market pessimism. Seven more Dow dogs back in the pack showed 5.35% to 9.87% price upsides.

On the downside, two Dow stocks exhibited pending price slumps based on 1 yr. analyst mean targets. Intel Corp. (NASDAQ:INTC) the Santa Clara, CA based semiconductor-broad line firm in the technology sector measured 2.71% to the downside. Microsoft Corp (NASDAQ:MSFT) the Redmond, WA based business software & services firm in the technology sector measured 5.92% to the downside to most tempt hungry bears.

The charts above used one year mean target price set by brokerage analysts matched against November 14 closing price to compare ten sector 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 index-specific articles reporting dividend yield plus price upside results for several stock indices: Dow 30; Russell 2000; S&P 500; S&P Aristocrats; Russell 1000; NASDAQ 100; Champions; Contenders; Challengers; Carnevale's Power 25 & Super 29 lists combined as his Solid 40.

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 November were disclosed step by step.

Dog Metrics Rated 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 November 14 top ten Dow dogs by yield included five of nine business sectors. Three of four technology firms showed the biggest dividend yields according to indexArb.com: AT&T (NYSE:T); Verizon (NYSE:VZ); Intel Corp . The fourth tech firm, Cisco Systems placed sixth. Two healthcare firms ranked themselves in the fourth, and eighth slots: Merck (NYSE:MRK), and Pfizer (NYSE:PFE). The lone basic materials representative, Chevron Corp. , was fifth. The only services firm, McDonald's (NYSE:MCD), placed seventh. The lone industrial goods firm, General Electric (NYSE: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.

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Actionable Conclusion (1): Dow Dogs Get Bullish, Overbought Bliss Returns

Projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs dropped over 1.1% since October, while aggregate single share price jumped up nearly 5.3%. 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 grew some. The overhang was $125 or 33% in August, and expanded to $161 or 43% for September, shrank down to $111 or 30% for October, and expanded again to $140 or 38'% as of November 14. Most of this bull rally was triggered by JPMorgan Chase & Co. replacing Microsoft in the top ten Dow dogs this past month.

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 dig out bargains.

Actionable Conclusion Too (2): Wall St. Wizards Forecast 6.6% 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 November 14, 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 $20,000 invested as $1k in each of the 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 dividend graphed from the plus row in the chart below exhibiting the over 6.9% net gain.

Factoring in a 0.293% loss from the negative net stock introduced above, a net net gain of 6.63% results.

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Yahoo projected a 5% lower dividend from $10K invested as $1k in each dog of this group while aggregate single share price was projected to increase nearly 6% 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 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

Seven 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 70% accurate.

Ten probable profit generating trades from $1k invested in each were revealed by Yahoo Finance and indexARB.com data for 2014 were:

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Cisco Systems netted $256.56, based on dividend plus mean target price estimates from thirty-four analysts less broker fees. The Beta number showed this estimate subject to volatility 32% greater than the market as a whole.

JPMorgan Chase & Co. netted $157.57, based on dividends plus a mean target price estimate by thirty-one analysts less broker fees. The Beta number showed this estimate subject to volatility 97% greater than the market as a whole.

Chevron Corp. netted $127.54 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 12% greater than the market as a whole.

Coca Cola Co. (NYSE:KO) netted $108.82 based on dividends plus a mean target price estimate from fifteen analysts less broker fees. The Beta number showed this estimate subject to volatility 74% less than the market as a whole.

Verizon Communications netted $97.57, based on dividends plus mean target price estimate from twenty-six analysts less broker fees. The Beta number showed this estimate subject to volatility 84% less than the market as a whole.

AT&T Inc netted $85.80 based on estimates from twenty-five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 67% less than the market as a whole.

Caterpillar Inc.. (NYSE:CAT) netted $83.87 based on dividends plus mean target price estimate from twenty-two analysts less broker fees. The Beta number showed this estimate subject to volatility 74% greater than the market as a whole.

McDonald's Corp. netted $80.66 based on target estimates from twenty-one analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 71% less than the market as a whole.

International Business Machines (NYSE:IBM) netted $79.99 based on a mean target price estimate from twenty-one analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 35% less than the market as a whole.

Merck & Co., Inc. netted $73.68 based on dividends plus the mean of annual price estimates from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 48% less than the market as a whole.

The average net gain in dividend and price was over 11.5% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 26% less than the market as a whole.

Actionable Conclusion (4): (Bear Alert) Analysts Forecast 2 Dogs of the Dow Spotted Net Losses of .9% & 4.9% By November 2014

Two probable losing trades revealed by Yahoo Finance for 2014 were:

Click to enlargeIntel Corp. lost $8.93, based on dividend and mean target price estimates from thirty-three analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 16% less than the market as a whole.

Microsoft Corp lost $49.72, based on dividend and mean target price estimates from twenty-nine analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 21% less than the market as a whole.

All stocks listed above were suggested only as possible starting points for your Dow 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.