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Summary

  • 7 Dow Industrial dividend dogs showed 1 yr. upsides of 8.26% to 17.38% as of May 23 (ranked by analyst mean target prices). 3 laggards showed upsides under 7.13%.
  • Dividends popped as prices dropped, initiating a bearish trend for top ten Dow dogs after April.
  • Analysts projected average 11.2% 1 yr. net gains for JPM; PFE; HD; KO; VZ; GE; PG; CVX; WMT; MRK.
  • Consider these stocks as possible starting points for your Dow dividend dog stock purchase research.

Yield (dividend/price) results from indexArb.com for 30 Dow industrial stocks as of market closing prices May 23 compared with analyst 1-yr target projections led to four actionable conclusions discussed below.

Wall Street Wizard Weightings

One-year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment were used to compare ten 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 optimal for a valid mean target price estimate.

Actionable Conclusion (1) Ten Dow Dogs Chased 9.94% Average Upsides for May

This article reported the Dow 30 Index. 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. A recent bonus report covered Sin stocks: Sindex AllStars.

Investors have utilized Michael B. O'Higgins' dividend dog ranking system to select portfolios of five or ten stocks in the Dow Index to trade as of the last day in December since 1991, when he wrote the book "Beating The Dow" (HarperCollins). Thereafter dog investors awaited annual results from their investments in the lowest priced, highest yielding stocks and trusted that the price of every stock they now owned would climb higher (having locked in a high yield percentage at purchase).

Investor Empowerment from the Dow Dogs

McGraw Hill Financial, publisher of this index, states:

"The Dow®, is a price-weighted measure of 30 U.S. blue-chip companies. The Dow® covers all industries with the exception of transportation and utilities, which are covered by the Dow Jones Transportation Average™ and Dow Jones Utility Average™.

While stock selection is not governed by quantitative rules, a stock typically is added to The Dow® only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors. Maintaining adequate sector representation within the indices is also a consideration in the selection process."

Dog Metrics Rated Dow Stocks by Yield

Dow dogs for May included six of nine business sectors in the top ten by yield: technology; healthcare; industrial goods; basic materials; services; consumer goods. Two of five technology firms showed the biggest dividend yields according to indexArb.com: AT&T (NYSE:T), and Verizon (NYSE:VZ). The other three techs, Intel Corp (NASDAQ:INTC), Cisco Systems (NASDAQ:CSCO), and Microsoft (NASDAQ:MSFT) placed fifth, ninth and tenth. The lone healthcare firm, Pfizer (NYSE:PFE), ranked third. A single industrial goods firm, General Electric (NYSE:GE), took fourth place. The lone basic materials representative, Chevron Corp. (NYSE:CVX), was sixth. Another loner, from services, McDonald's (NYSE:MCD), placed seventh. Finally, a lowly consumer goods firm, Procter & Gamble (NYSE:PG), placed eighth to round out the top ten Dow list.

Dividend vs. Price Results for Dow Top 10 Stocks

Relative strength by yield for the top ten Dow industrial index stocks was graphed below. Twelve periods of historic 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 for each period shown in blue for dividend and green for price.

Actionable Conclusion (2): Dow Dogs Turned Tail To Run From A Bear

Panic hit the Dow dogs as projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs jumped up 0.61% since April. Aggregate single share price dropped 0.24% to confirm the bearish sign. The Dow dogs overbought condition (wherein aggregate single share price of the top ten exceeded projected annual dividend from $1k invested in each of those ten) shrank a bit. The overhang was $145 or 38% for January, then retreated to $125 or 33% in February, swelled to $149 or 40% in March, expanded to $173 or 47% in April, then shrank to $170 or 46% come May. All of this recent panic on the Dow was triggered by general price declines coupled with indexarb.com projecting higher dividends for PFE; INTC; CVX; MSFT.

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 dig out bargains.

Actionable Conclusion (3): Wall St. Wizards Forecast A 7.18% Net Gain from Top 20 Dow Dogs By May 2015

Top twenty dogs from the Dow 30 Industrials were graphed below to show relative strengths by dividend and price as of May 23, 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.

(click to enlarge)

Yahoo projected over 5.6% lower dividend from $10K invested as $1k in each dog of this group while aggregate single share price was projected to increase nearly 5.7% in the coming year. The forecast showed the Dow expanding on its overbought condition.

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 chart. Three to nine analysts was considered optimal for a valid projection 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 price movement opposite of market direction.

Actionable Conclusion (4): Ten Dow DiviDogs to Net 5.4% to 18.3% by May 2015

Five of the top yielding dividend Dow 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 was 50% accurate.

Ten probable profit generating trades from $1k invested in each as revealed by IndexARB.com data by 2015 were:

JPMorgan Chase & Co. (NYSE:JPM) netted $183.19, based on dividends plus a mean target price estimate by thirty analysts less broker fees. The beta number showed this estimate subject to volatility 93% greater than the market as a whole.

Pfizer Inc. netted $168.54, based on dividend plus mean target price estimates from thirteen analysts less broker fees. The beta number showed this estimate subject to volatility 22% less than the market as a whole.

Home Depot (NYSE:HD) netted $139.89 based on dividends plus the mean of annual price estimates from twenty-three analysts less broker fees. The beta number showed this estimate subject to volatility 10% less than the market as a whole.

Coca Cola Co. (NYSE:KO) netted $110.24 based on dividends plus a mean target price estimate from nineteen analysts less broker fees. The beta number showed this estimate subject to volatility 66% less than the market as a whole.

Verizon Communications netted $106.46, based on dividends plus a mean target price estimate derived from twenty-six analysts less broker fees. The beta number showed this estimate subject to volatility 96% less than the market as a whole.

General Electric netted $105.61 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 19% greater than the market as a whole.

Procter & Gamble netted $96.98 based on dividends plus mean target price estimate from nineteen analysts less broker fees. The beta number showed this estimate subject to volatility 61% less than the market as a whole.

Chevron Corp. netted $78.00 based on a mean target price estimate from twenty-one analysts combined with projected annual dividend less broker fees. The beta number showed this estimate subject to volatility 8% greater than the market as a whole.

Wal-Mart Stores (NYSE:WMT) netted $77.47 based on estimates from twenty analysts plus dividends less broker fees. The beta number showed this estimate subject to volatility 62% less than the market as a whole.

Merck & Co. (NYSE:MRK) netted $53.75 based on target estimates from eighteen analysts plus dividends less broker fees. The beta number showed this estimate subject to volatility 50% less than the market as a whole.

The average net gain in dividend and price was over 11.2% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 25% less than the market as a whole.

Stocks listed above were suggested only as possible starting points for your Dow 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.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from www.indexarb.com; analyst mean target prices by Thompson/First Call in Yahoo Finance.

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: 3 Top Dow Dogs Drum 13.5% To 17.4% May Upsides