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 Kings as of market closing prices January 7 and compared them to results for the top ten dogs of the Dow. Arnold's top Divi-King dog selections for January were disclosed below step by step. Five actionable conclusions were drawn.
Actionable Conclusion (1): Dividend King 2014 Price Upsides Were Led by Coke
Seventeen stocks with more than 50 years of consecutive dividend growth compose the Dividend Kings. Their market closing prices January 8, 2014 were compared to analyst mean target price projections one year hence. The resulting chart of that data turned up eight stocks exhibiting 3.91% to 12.62% price upsides. Dover Corp. (DOV), an Illinois based diversified machinery industrial goods firm which showed the lowest upside of the eight. The Coca-Cola Company (KO), Georgia's peach of a soda soft drink purveyor exhibited the 12.62% price upside to lead the Dividend King Index.
On the downside, two stocks exhibited pending price slumps of 4% to 7% based on 1 yr. analyst mean target pricing. Lancaster Colony Corporation (LANC) presented the lesser bear sentiment of the two, while Diebold, Incorporated (DBD) slumped further to most tempt hungry bears.
Charts above used one year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment to compare dividend King stocks showing the highest upside and downside price potential into 2014 out of all seventeen. The number of analysts providing price estimates was noted after the name of each stock. Three to nine analysts were considered best for valid mean target price estimates.
Dog Metrics Gauged Dividend King Stocks by Yield
Seven of nine sectors were represented in the top ten dividend King dogs by yield as of January 8, 2014, per Yahoo! Finance data. Utilities placed two of three firms at the top of the ten, showing the highest forward looking yields. Northwest Natural Gas Company (NWN) and Vectren Corporation (VVC) claimed the top two spots. The other utility, American States Water Company (AWR) ranked sixth.
Third place went to the lone technology King, Diebold, Incorporated . The lone financial King, Cincinnati Financial Corp. (CINF) placed fourth. Two consumer goods firms, Procter & Gamble Co. (PG), and The Coca-Cola Company were slotted fifth and eighth. The remaining three Kings high yield sectors for January were represented by single entities: Johnson & Johnson (JNJ) from healthcare in sixth; Genuine Parts Company (GPC) from services in ninth place; and Emerson Electric Co. (EMR) from industrial goods in tenth completed the top ten dividend King dogs by yield.
The full list of seventeen divided Kings included no basic materials firms; one conglomerate, four consumer goods firms; one financial; one healthcare concern; four industrial goods makers; two services; one technology firm; three utilities.
Dividend vs. Price Results Compared to Dow Dogs
The graph below displays the relative strengths of the top ten NASDAQ 100 dogs by yield as of market close 1/7/2014 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 (2): Dividend King and Dow Dogs Got Bullish
Dividend King top January dividend payers looked upward after December. Total single share price inched up 0.3% in that period. Aggregate dividend from $10k invested as $1k in each of the top ten King dogs fell 0.58%.
The January numbers extended an overbought condition in which aggregate single share price for the top ten King dogs exceeded dividend from $10k invested as $1k in each. The September excess in price over dividend gap of $191 or 57% grew to $249 or 80% by January.
Bullish sentiment returned to the dow dogs, as projected, annual dividend from $10k invested as $1K in each of the top ten Dow dogs dropped over 1.2% since December. Aggregate single share price went up over 1.6% to emphasize the bullish 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 grew some. The overhang was $161 or 43% for September, shrank down to $111 or 30% for October, expanded again to $140 or 38% in November, closed a bit to $111 or 29% for December, then grew again to $126 or 34% in January. Rising prices for most of the top ten dogs through December accounted for the change.
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 (3): Wall St. Wizards Wand A 4% Net Gain from The 17 Dividend King Dogs By 2015
The seventeen dogs of the dividend King index were graphed below to show relative strengths by dividend and price as of January 7, 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 2015.
Historic prices and actual dividends paid from $17,000 invested as $1k in each of the highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 1.7 created data points for 2014. 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 2015 data points green for price and blue for dividend graphed from the net row in the chart below exhibiting the 4.07% net gain.
Fifteen dividend kings projected a gain of 4.66%. Factoring in a 0.58% loss from two negative net kings introduced above, the net gain of 4.07% results.
Yahoo projected a 2.4% lower dividend from $10K invested in this group of 17 while aggregate single share price was projected to increase nearly 2.3% in the coming year. Notice that price exceeded dividend, signaling an analyst predicted overbought Dividend King index continuing through 2014. 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 (4): Analysts Forecast 8 Dividend King Dogs to Net 3.5% to Over 13.4% By January 2015
Five of the eight top dividend yielding divided King dogs were verified as being among the top ten gainers for the coming year based on analyst 1 year target prices. So the January dog strategy was graded by Wall St. wizards as 62.5% accurate.
The ten probable profit generating trades revealed by Yahoo Finance for 2014 were led by Coca-Cola Co. upsides:
The Coca-Cola Company netted $134.23 based on dividends plus mean target price estimate from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 75% less than the market as a whole.
Procter & Gamble Co. netted $94.91 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 66% less than the market as a whole.
Vectren Corporation netted $92.31 based on dividends plus mean target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 56% less than the market as a whole
Lowe's Companies Inc. (LOW) netted $76.60 based on a mean target price estimate from twenty-three analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 6% greater than the market as a whole.
Colgate-Palmolive Co. (CL) netted $72.38 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 74% less than the market as a whole.
Northwest Natural Gas netted $60.81 based on dividends plus mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 66% less than the market as a whole.
Johnson & Johnson netted $54.02 based on dividends plus mean target price estimate from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 46% less than the market as a whole.
Dover Corp. netted $34.09 based on dividends plus mean target price estimate from thirty-five analysts less broker fees. The Beta number showed this estimate subject to volatility 43% more than the market as a whole.
The average net gain in dividend and price was nearly 7.8% on $8k invested as $1k in each of these dogs. This gain estimate was subject to average volatility 42% less than the market as a whole.
Actionable Conclusion (5): (Bear Alert) Analysts Forecast 2 King DiviDogs to Post Net Losses of 4% & 6% By 2015
Two probable losing trades revealed by Yahoo Finance for 2014 were:
Lancaster Colony Corporation lost $41.04, based on dividends and a mean target price estimate by one analyst including $20 of broker fees. The Beta number showed this estimate subject to volatility 49% less than the market as a whole.
Diebold, Incorporated lost $58.14 based on dividend and a mean target price estimate from eight analysts including broker fees. The Beta number showed this estimate subject to volatility 24% greater than the market as a whole.
The average net loss in dividend and price was nearly 5% on $2k invested as $1k in each of these dogs. This loss estimate was subject to average volatility 12% 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 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.