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Summary

  • 5 of 20 S&P 500 index dividend dogs showed an average 1 yr. upside of 3.74% as of April 4. One showed 7.76% downside as bear bait.
  • A bull run pushed most top yielding S&P 500 index dogs to their price limits and also propelled the dogs of the Dow upward.
  • Analysts projected average 9.9% 1 yr. net gains for KMI, PM, MO, ED, & VTR.
  • Consider these stocks as possible starting points for your S&P 500 index dividend dog stock purchase research.

S&P 500 Index prices from Yahoo! Finance tallied as of market closing April 4 were compared with analyst mean target gains one year hence. The results showcased just 5 stocks sporting 2.6% to nearly 16% price upsides. These included two tobacco firms, one gas utility, a gas & oil pipeline firm, and a healthcare REIT.

This report presumed yield (dividend / price) dividend dog methodology applied to any index and compared that index side by side with the Dow. Below, Arnold top dog selections for March were disclosed below step by step. Five actionable conclusions were drawn.

Actionable Conclusion (1): 5 S&P 500 Dogs Seek 5% to 21% Upsides Come February 2015; One is nearly 7% down

The charts above used one year mean target prices set by brokerage analysts matched against April 4 closing price to compare five S&P 500 index stocks showing the highest upside price potential and one showing a loss 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

The object of this posting was to reveal bargain stocks to buy and hold for at least one year. 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 Ordered S&P 500 Stocks by Yield

McGraw Hill Finance, publisher of the Dow Jones S&P 500 Index states:

"The S&P 500® is widely regarded as the best single gauge of large cap U.S. equities. There is over USD 5.58 trillion benchmarked to the index, with index assets comprising approximately USD 1.3 trillion of this total. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization."

Just four of nine sectors placed top dogs in this index by yield for March: technology; financial; utilities; consumer goods. Top dog Windstream Corp (NASDAQ:WIN) was one of four technology firms in the top ten. Other technology firms were Frontier Communications (NASDAQ:FTR), second; CenturyLink Inc. (NYSE:CTL), third; AT&T, Inc. (NYSE:T), seventh.

Fourth and fifth places were taken by financial firms, HCP, Inc (NYSE:HCP) and Health Care REIT, Inc. (NYSE:HCN). Two utilities took the sixth and eighth slots: Pepco Holdings, Inc. (NYSE:POM); TECO Energy (NYSE:TE). Finally, two consumer goods firms, Altria (NYSE:MO), and Reynolds American (NYSE:RAI) filled the ninth and tenth slots with smoke and completed these S&P 500 top ten dogs by yield.

Dividend vs. Price Results Compared to Dow Dogs

Relative strengths of the top ten S&P 500 dogs by yield as of market close 4/4/2014 compared to those of the Dow are shown in the graphs and charts below. Projected annual dividend history from $10.000 invested as $1k 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.

(click to enlarge)

Actionable Conclusion (2): S&P 500 & Dow Dogs Charged After February

The March S&P 500 collection of dividend payers charged after bulls as price popped up 6% after February. Aggregate dividend from $1k invested in each ($10k total) for the top ten S&P 500 stocks fell at a 7% rate in that period to confirm the bullish state.

Joy returned to the Dow dogs as projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs fell 2.7% since February. Aggregate single share price swelled 2.7% to confirm the bullish sign. The Dow dogs overbought condition grew as aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten. The overhang was $145 or 38% for January, then retreated to $125 or 33% in February, then swelled to $149 or 40% in March. Most of this recent joy on the Dow was triggered by across the board price improvement propelling dividends lower 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 provided another tool to dig out bargains.

Actionable Conclusion (3): Wall St. Wizards Wring Just 6.2% Net Gains from Top 20 S&P 500 Dogs by 2015

Top twenty dogs from the S&P 500 index graphed below showed relative strengths by dividend and price as of April 4, 2014 against 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 $1k in each of 20 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.

(click to enlarge)

Yahoo projected a 0.1% higher dividend from $10K invested in this group while aggregate single share price was projected to increase 1.1% 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 opposed to market direction.

Actionable Conclusion (4): Analysts Saw Five S&P 500 Dogs Netting 5.2% to 18.9% By 2015

One of five of the top yielding dividend S&P 500 dogs were verified as top gainers for the coming year by analyst 1 year target prices. So this month the dog strategy as graded by wall street wizards is 20% accurate.

The five probable profit generating trades revealed by analysts reported by Thompson/First Call in Yahoo Finance into 2015 were:

Kinder Morgan (NYSE:KMI) netted $189.27 based on estimates from fourteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 44% less than the market as a whole.

Phillip Morris (NYSE:PM) netted $89.41 based on a mean target price estimate from fifteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 5% less than the market as a whole.

Phillip Morris netted $89.41 based on a mean target price estimate from seventeen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole.

Altria netted $87.80 based on estimates from ten analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 57% less than the market as a whole.

Consolidated Edison (NYSE:ED) netted $75.66 based on estimates from thirteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 1% opposed to the market as a whole.

Ventas Inc. (NYSE:VTR) netted $52.75 based on a mean target price estimate from ten analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 55% less than the market as a whole.

The average net gain in dividend and price was nearly 10% on $10k invested as $1k in each of these five dogs. This gain estimate was subject to average volatility 52% less than the market as a whole.

Actionable Conclusion (5): (Bear Alert) Analysts Forecast TXN DiviDog to Post Net Loss of 10.2% By 2015

One probable losing trade revealed by analysts reported by Thompson/First Call in Yahoo Finance for 2015 was:

Entergy Corporation (NYSE:ETR) was projected to lose $39.55 based on dividend and a mean target price estimate from fifteen analysts including broker fees. The Beta number showed this estimate subject to volatility 80% less than the market as a whole.

Stocks listed above were suggested only as possible starting points for your index dog dividend stock purchase/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.

Graphs and charts were compiled by R&R, LLC from data derived from www.finance.yahoo.com; analyst mean target price by Thompson/First Call in Yahoo! Finance.

Source: 4 S&P 500 Dogs Seek 6% To 16% March Upsides