Editors' Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
Results from David Fish's Dividend Champions Index constituents listed as of market closing prices January 2 were compared to analyst mean target price projections one year hence. The resulting chart from that data, shown below, pointed to four stocks exhibiting 7.48% to 13.54% price upsides. Vectren Corp. (NYSE:VVC) an Evansville, IN headquartered diversified utility at 7.48% had the lesser upside of the four. Consolidated Edison (NYSE:ED), the New York electric utility at 7.58% had the third best upside of the four. Atmos Energy (NYSE:ATO) a Texas gas utility at 7.67% was second best. HCP Inc. (NYSE:HCP), the Long Beach, CA headquartered fully integrated real estate investment trust (REIT) serving the healthcare industry from the financial sector, lead the index with 13.54% in projected upside. Six other members of the Champions index back in the pack showed 4.48% to 7.22% price upsides.
On the downside, two stocks exhibited pending price slumps of 6.3% to near 12% based on 1 yr. analyst mean target pricing. Diebold Inc. (NYSE:DBD) the business software firm from the technology sector presented the weakest 6.30% bear side sentiment. Mercury General Corp. (NYSE:MCY) weighed in at 11.66% to the downside to most tempt hungry bears.
The charts above used one year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment to pick out Champions Index stocks showing the greatest upside & downside 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.
Thirty For the Money
This article was written to reveal bargain stocks to buy and hold for at least one year. It is one component in an ongoing series that has reported (1) dividend yield; (2) price upside; (3) net gain results based on analyst 1 yr target projections. Stocks reported were termed dogs because they were all selected based on Michael B. O'Higgins book "Beating The Dow" (HarperCollins, 1991), which revealed how high yielding stocks whose prices increased (and whose dividend yields therefore decreased) could be sold off once a year to sweep gains and reinvest the seed money into higher yielding stocks in the same index, named Dogs of the Dow. O'Higgins system works to find bargains in any collection of dividend paying stocks. Utilizing analyst price upside estimates expanded the universe to include popular growth equities, if desired.
The report below tallied yield (dividend / price) results from here verified by Yahoo Finance for the Dividend Champions Index as of market closing prices January 2 and compared them to results for the top ten dogs of the Dow. Arnold top dog selections for December were disclosed step by step. Four actionable conclusions were drawn.
Dog Metrics Sorted Dividend Champions Index Stocks by Yield
David Fish's Champions list of companies paying increasing dividends for 25 consecutive years or more was sorted by yield as of January 3 to reveal the top ten. Price and dividend data was sourced from Yahoo.com.
Ten Champion dogs that promised the biggest dividend yields through December included firms representing five of nine market sectors. The top stocks, Universal Health Realty Trust (NYSE:UHT), and HCP Inc., were two of four from the financial sector. The other financial firms, Mercury General Corp., and Old Republic International (NYSE:ORI) placed fifth, and tenth.
The balance of the top ten included one technology firm, AT&T Inc. (NYSE:T), in third; one consumer goods, Altria Group Inc. (NYSE:MO), in fourth place; Bowl America Class A (NYSEMKT:BWL.A) in seventh place was the lone service dog. Three utilities, Consolidated Edison, Northwest Natural Gas (NYSE:NWN), and WGL Holdings Inc. (NYSE:WGL) in sixth, eighth, and ninth places completed the representation of market sectors in the champions index.
Dividend vs. Price Results Compared to Dow Dogs
The graph of relative strengths of the top ten Dividend Champion dogs by yield as of market close 1/3/2014 compared to those of the Dow in mid-December. 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): Champions and Dow Dogs Both Bearish
In November the Champions top dividend payers reversed their bullish course set for five of the eight periods charted for the year. December continued the retreat from the bear. Champions top ten dog dividend increased 1.3% while price dropped 1.6%. Over the past year dividend from $10k invested as $1k in each of the ten dogs declined 12% while aggregate single share price rose 16.6%.
For the Dow dogs, meanwhile, projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs grew .27% since December 10, while aggregate single share price inclined over .11%. The Dow dogs overbought condition in which aggregate single share price of the ten exceeded projected annual dividend from $10k invested in those ten (@$1k each) barely changed. The overhang was $161 or 43% for September; shrank down to $111 or 30% for October; expanded to $171 or 47% November 11; backed off to $127 or 34% November 20; shrank again to $108 or 29% to end November; grew to $125 or 33.7% to start December; stayed at $125 or 33.5% January 2. Some of the recent move was perhaps triggered by Microsoft (NASDAQ:MSFT) replacing Coca-Cola Co. (NYSE:KO) in the top ten Dow dogs to start the new year.
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 (2): Wall St. Wizards See 5.7% Net Gain from Top 20 Dividend Champions Index Dogs Into 2015
Top twenty dogs from David Fish's Dividend Champions index were graphed below to show relative strengths by dividend and price as of January, 2014 and those projected by analyst mean price target estimates to the same date in 2015.
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 6.33% net gain.
Factoring in a .67% loss from the two negative net stocks introduced above, a net gain of 5.66% results.
Yahoo projected a 0.93% lower dividend from $10K invested as this group while aggregate single share price was projected to increase over 1.5% 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 Ten Dividend Champion Dogs to Net 6.3% to 17.3% By December 2014
Five of the ten top dividend yielding Champion dogs were verified as being among the ten net 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 50% accurate.
The ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
HCP Inc. netted $173.48 based on dividends plus a mean target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 35% less than the market as a whole.
Consolidated Edison netted $101.80 based on a mean target price estimate from fourteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to 3% volatility opposed to the market as a whole.
AT&T Inc. netted $96.09 based on dividends plus the mean of annual price estimates from twenty-four analysts less broker fees. The Beta number showed this estimate subject to volatility 74% less than the market as a whole.
Vectren Corp. netted $96.08 based on a mean target price estimate from five analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 62% less than the market as a whole.
Atmos Energy netted $89.75 based on a mean target price estimate from six analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 45% less than the market as a whole.
McDonald's Corp. (NYSE:MCD) netted $85.76 based on dividends plus mean target price estimate from twenty-three analysts less broker fees. The Beta number showed this estimate subject to volatility 72% less than the market as a whole.
Altria Group Inc. netted $75.97 based on a mean target price estimate from twelve analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 66% less than the market as a whole.
WGL Holdings Inc. netted $75.53 based on a mean target price estimate from six analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 54% less than the market as a whole.
Middlesex Water Co. (NASDAQ:MSEX) netted $64.80 based on a mean target price estimate from two analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 37% less than the market as a whole.
Piedmont Natural Gas (NYSE:PNY) netted $63.08 based on a mean target price estimate from six analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 52% less than the market as a whole.
The average net gain in dividend and price was over 9.2% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 60% less than the market as a whole.
Actionable Conclusion (4): (Bear Alert) Analysts Forecast 2 Dividend Champion Dogs to Post Net Losses of 4.8% and 8.7% By December 2014
Two probable losing trades revealed by Yahoo Finance for 2014 were:
Mercury General Corp. lost $86.61, based on dividends and a mean target price estimate by two analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 72% less than the market as a whole.
Diebold Inc. lost $47.84, based on dividend and mean target price estimates from eight analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 20% greater than the market as a whole.
The average net loss in dividend and price was over 6.7% on $2k invested as $1k in each of these dogs. This loss estimate was subject to average volatility 26% less than the market as a whole.
The net gain and loss estimates above did not factor-in any foreign or domestic tax problems resulting from distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.
Stocks listed above were suggested only as possible starting points for your index dog dividend stock purchase or short sale 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 CSCO, CVX, 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.