Editor's 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 members from Yahoo Finance tallied as of market closing prices February 28, 2014 were compared with analyst mean target gain results one year out. The resulting chart of that data below displayed eight stocks posting 4.1% to 12% price upsides. The eight included one technology sector firm at the top; a basic materials dog second; two consumer goods firms in third and seventh places; two financial firms fourth and eighth; one services representative in fifth; a utility in sixth.
Below, Arnold top dog selections for February by yield, price upsides, and net gain upsides were disclosed step by step. Four actionable conclusions were drawn.
Actionable Conclusion (1): 8 Champion Dogs Chase 4% to 12% Upsides Come February 2015
The chart above used one year mean target price calculated from brokerage analysts matched against end of month closing price to compare sector 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.
Seeking Alpha reader requests prompted this series of index-specific articles reporting dividend yield plus price upside results for these indices: Dow 30; S&P 500; Russell 2000 & 1000; S&P Aristocrats; NASDAQ 100; Champions; Challengers; Global.
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.
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 February 28 to reveal the top ten.
Ten Champion dogs that promised the biggest dividend yields through February included firms representing five of nine market sectors: financial; technology; consumer goods; utilities; services. The top stock, Universal Health Realty Trust (NYSE:UHT), was one of five from the financial sector. The other financial firms, HCP Inc. (NYSE:HCP), Mercury General Corp. (NYSE:MCY), Old Republic International (NYSE:ORI), and United Bankshares Inc. (NASDAQ:UBSI) placed third, fourth, sixth, and ninth.
The balance of the top ten included one technology firm, AT&T Inc. (NYSE:T), in second; one consumer goods, Altria Group Inc. (NYSE:MO), in fifth place; Two utilities, Consolidated Edison (NYSE:ED), and WGL Holdings Inc. (NYSE:WGL), placed seventh, and eighth. Bowl America Class A (NYSEMKT:BWL.A) the lone service dog in tenth place completed the representation of market sectors in the champions index.
Dividend vs. Price Results Compared to Dow Dogs
Periodic strength of ten top Champions dogs by yield was graphed below as of market closing prices through 2/38/2014 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): Champions Mixed Down As Dow Dogs Retreated
Champions top dividend payers sent a mixed signal as both price and dividend dropped after January. Champions top ten dog price dropped 2.3% while dividend fell 0.7%.
Gloom returned to the Dow dogs as projected annual dividend from $10k invested as $1K in each of the top ten increased 0.62% since January. At the same time aggregate single share price fell 3.4% to confirm the bearish sign. 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 fell back. The overhang was $140 or 38% in November,closed a bit to $111 or 29% for December, expanded to $145 or 38% for January, then retreated to $125 or 33% in February. Most of this recent gloom on the Dow was triggered by Coca Cola Co. (NYSE:KO) replacing Microsoft (NASDAQ:MSFT) at the tail of the top ten Dow accompanied by a General Electric (NYSE:GE) price drop propelling GE higher by yield.
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 Wished 6.9% 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 February, 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 $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 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.
Yahoo projected a 2./7% lower dividend from $20K invested as $1k in each stock in this group while aggregate single share price was projected to increase over 4% in the coming year. Notice that price exceeded dividend signaling an analyst predicted overbought Champions index into 2015. 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 Eight Dividend Champion Dogs to Net 5.6% to 15.3% By February 2015
Three of the eight 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 was 37.5% accurate.
The ten probable profit generating trades revealed by Yahoo Finance for 2015 were:
AT&T Inc. netted $153.29 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 72% less than the market as a whole.
Chevron Corp (NYSE:CVX) netted $134.69 based on dividends plus a mean target price estimate from eighteen analysts less broker fees. The Beta number showed this estimate subject to volatility 7% more than the market as a whole.
Altria Group Inc. netted $128.02 based on a mean target price estimate from eleven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 58% less than the market as a whole.
United Bankshares Inc. netted $124.41 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 5% greater than the market as a whole.
McDonald's Corp. (NYSE:MCD) netted $97.42 based on dividends plus mean target price estimate from twenty-two analysts less broker fees. The Beta number showed this estimate subject to volatility 65% less than the market as a whole.
Middlesex Water Co. (NASDAQ:MSEX) netted $81.43 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 38% less than the market as a whole.
Leggett & Platt Inc. (NYSE:LEG) netted $66.97 based on a mean target price estimate from three analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 9% less than the market as a whole.
Cincinnati Financial (NASDAQ:CINF) netted $58.50 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 21% less than the market as a whole.
The average net gain in dividend and price was over 10.6% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 31% less than the market as a whole.
The net gain 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, 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.