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Summary

  • Ten top Challenger dividend dogs showed bold analyst 1 year mean target price upsides averaging 14.72% as of April 4 while one down dog lost 9.69%.
  • A bear attacked both Challenger and Dow index dogs as dividends flew while price flopped.
  • Analysts projected average 21.1% one-year net gains for SDRL, EVEP, STWD, EXLP, STON, EPB, BBEP, TAL, TCAP and LXP.
  • Consider these stocks as possible starting points for your Challenger index dividend dog stock purchase research.

Yield (dividend/price) results from David Fish's Dividend Challengers Index members as of April 4 market close tallied from here were compared with analyst mean target gain results one year out. The resulting chart from that data showed five basic materials, three financials and two services sector stocks posting 9.45% to 23.54% price upsides.

Below, five actionable conclusions were drawn as Arnold top dog selections for April by yield, price upsides, and net gain were disclosed step by step.

Actionable Conclusion (1): 10 Challenger Dogs Point To 14.7% Average Upsides Come April 2015; 1 Pup Fell Back 9.7%

Thirty For the Money

This article was written 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. The 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.

Dog Metrics Measured Challenger Index Stocks by Yield

David Fish's March 31 Challengers list contained stocks distinguished by having paid increasing dividends for 5 to 9 straight years and were ranked by yield as of April 9 to reveal the top ten.

Ten challenger dogs posting the biggest projected April dividend yields included firms representing three of nine market sectors: basic materials (5), services (2), financials (3). Top dog was SeaDrill Limited (NYSE:SDRL), the best of those five basic materials companies. Other basic materials firms took slots two, six, eight and 10: BreitBurn Energy Partners LP (NASDAQ:BBEP), EV Energy Partners LP (NASDAQ:EVEP), Vanguard Natural Resources LLC (NASDAQ:VNR), El Paso Pipeline Partners LP (NYSE:EPB).

Five financial and services sector firms completed the top ten Challengers dogs list: Three financial firms, PennyMac Mortgage Investment Trust (NYSE:PMT), Starwood Property Trust Inc. (NYSE:STWD), and Triangle Capital Corp. (NYSE:TCAP) placed third, seventh and ninth. Two services sector representatives, StoneMor Partners LP (NYSE:STON), and Navios Maritime Partners LP (NYSE:NMM), were fourth and fifth dogs to complete the top ten Challengers.

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 4/9/2013 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.

(click to enlarge)

Actionable Conclusion (2): Challengers and Dow Dogs Retreated

Aggregate single share price of the top ten Challengers by yield dropped 6% since February and March. Meanwhile dividends from $10k invested as $1k in each of those top ten dogs climbed 0.7% for that period. The result was a Bear signal for April.

Gloom continued for the Dow dogs as projected annual dividends from $10k invested as $1K in each of the top ten increased 5.5% since February/March. At the same time aggregate single share price fell 5.7% 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, decreased. The overhang was $145 or 38% for January, retreated to $125 or 33% in February/March, then shrunk again to $75 or 18.5% for April.

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 13.7% Net Gain from Top 20 Dividend Challengers Index Dogs By April 2015

Top twenty dogs from David Fish's Dividend Challengers index were graphed below to show relative strengths by dividend and price as of April 9, 2014, and those projected by analyst mean price target estimates to the same date in 2015.

A hypothetical $1,000 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 $1,000 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 $1,000 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 an 8% lower dividend from $10K invested in this group ($1k each) while aggregate single share price was projected to increase nearly 1.5% 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 were 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 stock's movement opposite of market direction.

Actionable Conclusion (4): Analysts Forecast 10 Dividend Challenger Dogs to Net 15.5% to 33% By April 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 one-year target prices. So this month the dog strategy was deemed 70% accurate by Wall St. wizards which projected one-year mean target prices.

Ten probable profit generating trades revealed by Yahoo Finance into 2015 were:

SeaDrill Limited netted $328.99 based on dividends plus a mean target price estimate by thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 37% more than the market as a whole.

EV Energy Partners LP netted $251.29 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.

Starwood Property Trust netted $247.08 based on dividend plus mean target price estimates from six analysts less broker fees. The Beta number showed this estimate subject to volatility 17% less than the market as a whole.

Exterran Partners LP (NASDAQ:EXLP) netted $223.05 based on estimates from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 11% greater than the market as a whole.

StoneMor Partners LP netted $207.16 based on dividends plus a mean target price estimate from two 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 $193.22 based on a mean target price estimate from twelve analysts combined with projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 94% less than the market as a whole.

Breitburn Energy Partners netted $184.20 based on dividends plus mean target price estimate from sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 31% less than the market as a whole.

TAL International Group Inc. (NYSE:TAL) netted $170.12 based on a mean target price estimate from ten analysts combined with projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 59% more than the market as a whole.

Triangle Capital Corp. netted $157.32 based on dividends plus mean target price estimates from four analysts less broker fees. The Beta number showed this estimate subject to volatility 34% less than the market as a whole.

Lexington Realty Trust (NYSE:LXP) netted $155.59 based on estimates from seven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 43% greater than the market as a whole.

The average net gain in dividend and price was nearly 21.2% on $1k invested in each of these ten dogs. This gain estimate was subject to average volatility 12% less than the market as a whole.

Actionable Conclusion (5): (Bear Alert) Analysts Forecast 1 Challenger Dog to Post A Net Loss of 5.3% By 2015

The probable losing trade revealed by Yahoo Finance for 2015 was:

NuStar GP Holdings LLC (NYSE:NSH) lost $52.50 based on dividend and a mean target price estimate from seven analysts including broker fees. The Beta number showed this estimate subject to volatility equal to 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 or 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, 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.

Source: Challenger Dogs Chase 9.5% To 23.5% April Upsides