Results from David Fish's Dividend Challengers Index constituents listed as of market closing prices January 31 were compared with analyst mean target gain results one year out. The resulting chart of that data below displayed six stocks posting 10.37% to 19.95% price upsides. The six included four basic materials firms in first, second, fifth and sixth; a financial firm in third; a service firm in fourth. Four firms posting less than 10% upsides trailed the pack leaders: three financial entities placed seventh, eighth, and tenth; another basic materials firm took the ninth slot.
Actionable Conclusion (1): 10 Challenger Dogs Show 5.1% to 19.95% Upsides In January
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 ten Challengers Index stocks showing the highest upside price potential into 2015 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 David Fish's dripinvesting.com for his Dividend Challengers Index as of market closing prices January 31 and compared those results with analyst 1 yr target projections as well as the top ten dogs of the Dow. Arnold top dog selections for January were disclosed step by step. Four actionable conclusions were drawn including the price upside list revealed above.
Dog Metrics Measured Challenger 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. and were ranked by yields calculated as of January 31 to reveal the top ten.
Ten challenger dogs posting the biggest projected January dividend yields included firms representing four of nine market sectors. Top dog was PennyMac Mortgage Investment Trust (NYSE:PMT), the best of two financial firms. The other financial firm, Triangle Capital Corp. (NYSE:TCAP) placed eighth. Second and fourth dogs were Navios Maritime Partners LP (NYSE:NMM), and StoneMor Partners LP (NASDAQ:STON), services sector representatives. A single utilities representative, AmeriGas Partners LP (NYSE:APU) was tenth.
Five basic materials companies took slots three, five through seven, eight, and ninth to complete the top ten challengers dogs list: Breitburn Energy Partners LP (BBEP); Boardwalk Pipeline Partners LP (NYSE:BWP); EV Energy Partners LP (NASDAQ:EVEP); Vanguard Natural Resources LLC (NYSE:VNR); El Paso Pipeline Partners LP (NYSE:EPB).
Dividend vs. Price Results Compared to Dow Dogs
Periodic strength of ten top Challenger dogs by yield was graphed below as of market closing prices through 1/31/2013 and compared to those of the Dow. Projected annual dividend history 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 green for price and blue for dividend.
Actionable Conclusion (2): Challengers Cowed by Bear As Dow Dogs Dithered Higher
Aggregate single share price of the ten Challengers declined 1.6% since December. 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 January.
Conflict infected the Dow dogs as projected annual dividend from $10k invested as $1K in each of the top ten increased nearly 2.5% since December. Aggregate single share price also increased nearly 6.3% to confirm the dithering. 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 $111 or 29% for December, and widened to $145 or 38% in January. Most of this dither up was triggered by Procter & Gamble (NYSE:PG) replacing Microsoft (NASDAQ:MSFT) at the tail end of the ten Dow dogs this month.
To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metric, analyst mean price target estimates is another tool used to dig out bargains.
Actionable Conclusion (3): Wall St. Wizards Saw A 12.74% Net Gain from Top 20 Dividend Challengers Index Dogs By 2015
Top twenty dogs from David Fish's Dividend Challengers index were graphed below to show relative strengths by dividend and price as of January 31, 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 $1000 invested in the twenty highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 2 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 dividends.
Yahoo projected a 7.1% lower dividend from $10K invested in this group ($1k each) while aggregate single share price was projected to increase 7.2% 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 (4): Analysts Forecast 10 Dividend Challenger Dogs to Net 13% to 26.5% By January 2015
Seven 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 whopping 70% accurate.
Ten probable profit generating trades revealed by Yahoo Finance into 2015 were:
EV Energy Partners LP netted $265.20 based on dividends plus mean target price estimate from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 59% less than the market as a whole.
Boardwalk Pipeline Partners netted $261.07, based on dividends plus a mean target price estimate by eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 15% less than the market as a whole.
StoneMor Partners LP netted $208.20 based on dividends plus a mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 36% less than the market as a whole.
Excel Trust Inc.(NYSE:EXL) netted $202.61, based on dividend plus mean target price estimates from six analysts less broker fees. The Beta number showed this estimate subject to volatility 37% less than the market as a whole.
El Paso Pipeline Partners 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 82% less than the market as a whole.
Exterran Partners LP (EXLP) netted $154.25 based on estimates from seven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 16% greater than the market as a whole.
Breitburn Energy Partners netted $153.72 based on dividends plus mean target price estimate from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 27% less than the market as a whole.
Triangle Capital Corp. netted $152.11 based on dividends plus mean target price estimate from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 37% less than the market as a whole.
Lexington Realty Trust (NYSE:LXP) netted $131.71 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 46% more than the market as a whole.
PennyMac Mortgage netted $131.17 based on estimates from ten analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 35% less than the market as a whole.
The average net gain in dividend and price was nearly 18.3% 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.
Stocks listed above were suggested only as decent starting points for your index dog 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.