Yield (dividend / price) results from indexArb.com for 30 Dow industrial stocks as of market closing prices August 22 stacked against 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 Disclosed 9.92% Average August Upsides
This article covered 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 & Aristocrats; Russell 2000 & 1000; NASDAQ 100; Champions, Contenders, & Challengers Combined; Global. Bonus reports covered, Sindex AllStars, and Sector Leaders.
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
Top ten Dow dogs by yield for August included six of nine business sectors: technology; healthcare; industrial goods; services; basic materials; consumer goods. Two of three technology firms showed the biggest dividend yields according to indexArb.com: AT&T (NYSE:T), and Verizon (NYSE:VZ). The other techie, Cisco Systems (NASDAQ:CSCO), a placed seventh.
The top of two healthcare firms, Pfizer (NYSE:PFE) ranked third; the other health firm, Merck & Co. (NYSE:MRK) placed tenth. A single industrial goods firm, General Electric (NYSE:GE), took fourth place.
The lone services representative, McDonald's (NYSE:MCD) was fifth. Another loner from basic materials, Chevron Corp. (NYSE:CVX), placed sixth. Finally, two consumer goods firms, Procter & Gamble (NYSE:PG), and Coca Cola Co. (NYSE:KO), placed eighth and ninth to complete the August top ten Dow dividend dog 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 Retreated
Dow dogs reversed and retreated by showing 3.2% bigger annual dividend from $10k invested as $1K in each of the top ten, while aggregate single share price dropped 2.1% between July 15 and August 22.
As a result, the Dow dogs overbought condition (in which aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k each in those ten) declined from its new high. The overhang was $145 or 38% for January; retreated to $125 or 33% in February; swelled to $149 or 40% in March; expanded to $173 or 47% in April; shrank to $170 or 46% come May; swelled to $215 or 59% for July; then fell back to $197 or 53% in August.
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 Wrestle A 7.18% Net Gain from Top 20 Dow Dogs By August 2015
Top twenty dogs from the Dow 30 Industrials were graphed below to show relative strengths by dividend and price as of August 22, 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 6.5% lower dividend from $10K invested as $1k in each dog of this group while aggregate single share price was projected to increase nearly 5.6% in the coming year. The forecast showed Dow dogs extending their overbought condition one year hence.
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 Deduce 6.3% to 19.4% Net Gains by August 2015
Eight 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 80% accurate.
Ten probable profit generating trades from $1k invested in each as revealed by IndexARB.com data by 2015 were:
Pfizer Inc. netted $194.38, based on dividend plus mean target price estimates from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 27% less than the market as a whole.
General Electric netted $156.67 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 15% greater than the market as a whole.
JPMorgan Chase & Co. (NYSE:JPM) netted $149.26, based on dividends plus a mean target price estimate by twenty-seven analysts less broker fees. The Beta number showed this estimate subject to volatility 92% greater than the market as a whole.
Verizon Communications netted $143.65, based on dividends plus a mean target price estimate derived from twenty-four analysts less broker fees. The Beta number showed this estimate subject to volatility 2% opposite the market as a whole.
Coca Cola Co. netted $114.48 based on dividends plus a mean target price estimate from nineteen analysts less broker fees. The Beta number showed this estimate subject to volatility 59% less than the market as a whole.
McDonald's Corp.. netted $94.25 based on a mean target price estimate from twenty 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.
Chevron Corp netted $82.90 based on dividends plus the mean of annual price estimates from twenty-two analysts less broker fees. The Beta number showed this estimate subject to volatility 9% greater than the market as a whole.
AT&T Inc. netted $82.90 based on dividends plus mean target price estimate from twenty-two analysts less broker fees. The Beta number showed this estimate subject to volatility 77% less than the market as a whole.
Cisco Systems netted $74.12 based on estimates from thirty-six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 23% greater than the market as a whole.
Wal-Mart Stores (NYSE:WMT) netted $63.19 based on target estimates from twenty-two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 66% less than the market as a whole.
The average net gain in dividend and price was over 11.5% 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 June 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 Thomson/First Call in Yahoo Finance.
Disclosure: The author is long CSCO, GE, INTC, PFE, T, VZ.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.