Results from David Fish's Dividend Challengers Index constituents listed as of market closing prices December 31 were compared to analyst mean target price projections one year hence. The resulting chart from that data shown below revealed EV Energy Partners LP (NASDAQ:EVEP) A Houston based oil & gas drilling & exploration firm exhibited a 27.06% price upside to lead the index. Nine additional challenger dogs showed 7.7% to 18.5% 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 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.
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 stock universe to include popular growth equities, if desired.
The report below tallied yield (dividend / price) results from Yahoo Finance for the Dividend Challengers Index as of market closing prices December 31 and compared them to results for the top ten dogs of the Dow. Arnold top dog selections for December were disclosed step by step. Three actionable conclusions were drawn.
Dog Metrics Measured Challengers Index Stocks by Yield
David Fish's December 31 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 December 31 to reveal the top ten. Price and dividend data was verified from Yahoo.com.
Ten challenger dogs posting the biggest projected December dividend yields included firms representing four of nine market sectors. Top dog was PennyMac Mortgage Investment Trust (NYSE:PMT), one of two financial firms. The next two stocks in second and third, Navios Maritime Partners LP (NYSE:NMM), and StoneMor Partners LP (NASDAQ:STON), were the services sector representatives. The other financial firm, Triangle Capital Corp. (NYSE:TCAP) placed seventh. A single utilities representative, AmeriGas Partners LP (NYSE:APU) was ninth.
Five basic materials companies took slots four through six, eight, and ten to complete the top ten challengers dogs list: EV Energy Partners LP ; Vanguard Natural Resources LLC (NYSE:VNR); Boardwalk Pipeline Partners LP (NYSE:BWP); NuStar GP Holdings LLC (NYSE:NSH); Enbridge Energy Partners LP (NYSE:EEP).
Dividend vs. Price Results Compared to Dow Dogs
The graph below showed relative strengths of top ten Dividend Challenger dogs by yield as of market close 12/31/2013 compared to those of the Dow. Historic projected annual dividend from $10,000 invested as $1k in each of the ten highest yielding stocks and the total single share price of those ten stocks created the data points shown in blue for dividend and green for price.
Actionable Conclusion (1): Challengers & Dow Dogs Both Retreated from Bears
Dividend challengers aggregate single share price of the ten Challengers declined 1.8% since November. Dividend from $10k invested as $1k in each of those top ten dogs inclined 2.7% for that period to confirm a bearish signal for December.
Bearish sentiment also returned to the dow dogs as projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs increased nearly 2% since November. Aggregate single share price dropped nearly 3.8% to emphasize the bearish turn. 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 sank 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, expanded again to $140 or 38% in November, then closed a bit to $111 or 29% for December. Most of this bear attack was triggered when Microsoft (NASDAQ:MSFT) replaced JPMorgan Chase & Co. (NYSE:JPM) at the tail of the top ten Dow dogs in December.
To quantify top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential and so was added to the simple high yield "dog" metric used to dig out bargains.
Actionable Conclusion (2): Wall St. Wizards See A 13.5% 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 December 31, 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 7% lower dividend from $10K invested in this group ($1k each) while aggregate single share price was projected to increase 8% 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 10 Dividend Challenger Dogs to Net 14% to 34% By December 2014
Four of the ten top dividend yielding challenger dogs were verified as being among the ten gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy for challengers as graded by Wall St. wizards is only 40% accurate.
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
EV Energy Partners LP netted $341.33 based on dividends plus mean target price estimate from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 48% less than the market as a whole.
StoneMor Partners LP netted $249.59 based on dividends plus a mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 28% less than the market as a whole.
Excel Trust Inc.(NYSE:EXL) netted $226.71, based on dividend plus mean target price estimates from six analysts less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.
Lexington Realty Trust (NYSE:LXP) netted $213.10 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 60% more than the market as a whole.
Digital Realty Trust (NYSE:DLR) netted $179.10, based on dividends plus a mean target price estimate by sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 42% less than the market as a whole.
Transmontaigne Partners (NYSE:TLP) netted $164.71 based on estimates from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.
PennyMac Mortgage netted $161.62 based on estimates from ten analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 30% less than the market as a whole.
El Paso Pipeline Partners (NYSE:EPB) netted $151.67 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 90% less than the market as a whole.
Vanguard Natural Resources LLC netted $141.25 based on dividends plus mean target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 4% more than the market as a whole.
Williams Partners LP (NYSE:WPZ) netted $140.24 based on dividends plus mean target price estimate from fourteen analysts 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 nearly 19.7% on $1k invested in each of these ten dogs. This gain estimate was subject to average volatility 27% 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 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.