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Summary

  • 9 top Russell 2000 small cap plus 1 Russell 1000 large-cap index divi-dogs showed serious 1 yr. analyst mean target price upsides averaging 12.77% as of May 23.
  • Top yielding Russell 2000 dogs got mixed up while Russell 1000 index top ten (by yield) chased bulls. Meanwhile Dow dogs retreated from a bear.
  • Analysts projected average 22.4% 1 yr. net gains for MCC, PSEC, KCAP, PMT, SDRL, FSC, TICC, TCRD, RSO, & WHF.
  • Consider these as starting points for your Russell 2000 & Russell 1000 index dividend dog stock purchase research.

A compilation of Russell 2000 Small-Cap & Russell 1000 Large-Cap constituents listed as of market closing prices May 23 were compared to analyst mean target price projections one year later. A chart of that data shown below highlighted all of the top ten posting double digit percentages.

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 May were disclosed step by step. Four actionable conclusions were drawn.

Actionable Conclusion (1): 10 Russell Dogs Seek 6.6% to 20.5% Upsides For May 2015

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 Russell 2000/1000 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.

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.

Sixty For the Money

Bargain stocks to buy and hold for at least one year are but 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.

Dog Metrics Measured Russell Index Stocks by Yield

(1) Russell 2000 (top 30)

Russell Investments states:

"The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

The Russell 2000 Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set."

Russell 2000 stocks were ranked by yields calculated as of May 23 to reveal the top ten. Price and dividend data was sourced from Yahoo.com.

Ten stocks in this index promising the biggest yields through April represented just three of nine business sectors: services, financials, and utilities. A lone service dog, Intersections Inc. (NASDAQ:INTX) was top dog.

Resource Capital (NYSE:RSO) in second place, was one of eight financial firms. Others in the financial sector placed third through seventh, ninth and tenth: Prospect Capital Corporation (NASDAQ:PSEC) [3]; KCAP Financial (NASDAQ:KCAP) [4]; TICC Capital Corporation (NASDAQ:TICC) [5]; Medley Capital Corporation (NYSE:MCC) [6]; Dynex Capital, Inc. (NYSE:DX) [7]; PennyMac Mortgage Investment Trust (NYSE:PMT) [9]; Fifth Street Finance Corp. (NASDAQ:FSC) [10].

Atlantic Power Corporation (NYSE:AT) the infamous electric utility struggling back into the good graces of stockholders (but not advisors), was the lone utility, taking the eighth slot which completed the Russell 2000 top ten small cap dogs.

(2) Russell 1000 (top 30)

Russell Investments states:

"The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.

The Russell 1000 Index is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to ensure new and growing equities are reflected.

Top ten stocks in this index promising the biggest yields in May represented three of nine sectors: financial, basic materials, and technology. Top and bottom dogs were financial firms, Chimera Investment Corp. (NYSE:CIM) led, followed by American Capital Agency (NASDAQ:AGNC) [2], but Starwood Property Trust Inc. (NYSE:STWD) was at the tail [10].

A lone basic materials company, Seadrill Limited (NYSE:SDRL) placed third, while Windstream Corp (NASDAQ:WIN), the lone technology firm, placed fourth.

Finally, six more financial firms placed fifth through ninth: Annaly Capital Management Inc (NYSE:NLY) [5]; Two Harbors Investment (NYSE:TWO) [6]; Hatteras Financial Corp (NYSE:HTS) [7]; MFA Financial Inc (NYSE:MFA) [8]; Ares Capital Corp. (NASDAQ:ARCC) [9] to completed the Russell 1000 top ten dogs.

Dividend vs. Price Results Compared to Dow Dogs

Relative strengths of the top ten Russell 2000 dogs and the Russell 1000 dogs by yield as of market close 5/23/2014 compared to those of the Dow were graphed 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)

(click to enlarge)

Actionable Conclusion (2): Russell 2000 Got Mixed Up; Dow Retreated; Russell 1000 was Bullish

The May Russell 2000 dividend dogs sent a mixed up signal as both dividend and price increased. In the past month Russell 2000 top ten dog annual dividend from 10k invested as $1k in each dog ramped up 5% while aggregate single share price of the ten inclined 7% to confirm the mixed up signal.

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.

The May Russell 1000 collection of dividend payers charged bullishly. Top ten annual dividend from 10k invested as $1k in each dog dropped 1.9% since April while aggregate single share price of the ten increased 2.3%.

A consolidation of the Russell 2000 & Russell 1000 Indices constituents listed as of market closing prices May 23 and re-named Russell 2000/1000 ranked themselves by yield as follows:

To quantify the top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential when added to the simple high yield "dog" metric used to sniff out bargains.

Actionable Conclusion (3): Wall St. Wizards Wish 16.9% Net Gain from Top 20 Russell 2000/1000 Dogs By May 2015

Top twenty dogs from the Russell 2000/1000 index were graphed below to show relative strengths by dividend and price as of May 23, 2014 along with dividend and price 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 dividends to find the projected 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.

Historical prices and actual dividends paid from $1000 invested in 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 dividends.

Yahoo projected 4.4% lower dividend from $10K invested in this group while aggregate single share price was projected to increase 8% 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 numbers indicated the degree of a stocks movement opposed to market direction.

Actionable Conclusion (4): Analysts Forecast 10 Russell 2000/1000 DiviDogs to Net 16.6% to 30.4% By May 2015

Six of the top dividend yielding Russell 2000/1000 dogs were verified as being among the top ten gainers for the coming year based on analyst 1 year target prices. So this month again the dog strategy as graded by Wall St. wizards was 60% accurate.

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

Medley Capital Corporation netted $304.22 based on dividends plus the mean of annual price estimates from twelve analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 60% less than the market as a whole.

Prospect Capital Corp. netted $291.88 based on a mean target price estimate from nine analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 14% less than the market as a whole.

KCAP Financial netted $255.18 based on dividends plus the mean of annual price estimates from four analysts less broker fees. The Beta number showed this estimate subject to volatility 39% greater than the market as a whole.

PennyMac Mortgage Investment Trust netted $241.12 based on dividends plus the mean of annual price estimates from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 34% less than the market as a whole.

Seadrill Limited netted $206.01 based on dividends plus mean target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 38% greater than the market as a whole.

Fifth Street Finance Corp. netted $199.29, based on dividend plus mean target price estimates from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.

TICC Capital Corporation netted $197.03, based on dividends plus a mean target price estimate by four analysts less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.

THL Credit Inc. (NASDAQ:TCRD) netted $192.75 based on dividends plus the mean of annual price estimates from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 42% less than the market as a whole.

Resource Capital netted $185.22 based on dividends plus mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 23% less than the market as a whole.

WhiteHorse Finance Inc. (NASDAQ:WHF) netted $166.73 based on a mean target price estimate from seven analysts combined with projected annual dividend less broker fees. A Beta number was not available for WHF.

The average net gain in dividend and price was 22.4% on $1k invested in each of these ten dogs. This gain estimate was subject to average volatility 6% less than the market as a whole.

Net gain estimates above did not factor-in any tax problems resulting from return of capital or dividend distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.

The stocks listed above were suggested only as decent starting points for your index 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.dividend.com; finance.yahoo.com; analyst mean target price by Thompson/First Call in Yahoo Finance.

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.

Source: 7 Russell Dogs Reach For 11% To 20.5% May Upsides