Yale professor Robert Schiller borrowed the term "irrational exuberance" from a quote from Alan Greenspan to title two books predicting famous market bubbles. Schiller's first Irrational Exuberance book predicted the dot com crash. His second predicted the housing bubble. The following quote from Robert Schiller is very appropriate for any market: "People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes."
This article is dedicated to conservative preparation and positive outcomes though it does concentrate on investment gyrations. Last week's article, "Lessons from Dogs of the Indices: Dividend Yields Soar as Stock Prices Plunge" prompted reader Duke1981 to post his first ever SA comment. He requested the author to "add relative financial data on the companies selected. It seems that many companies on you[r] list possess much higher risks, that even a high yield would not protect you from."
Sure enough, based upon further review, this article supplies missing price data referred to in the title of the previous article. A graph of "Annual Dividends Forecast from $1k Invested in each of 10 Top Yielding Stocks in 7 Indices" was featured in that article. The dividends plotted appeared to be taking off like wild geese over the past few months. However the price data were not so prominently displayed and were relegated to charts detailing the top 10 high yield stocks comprising the selected (Dog) stocks in each index. The original article showed data from seven indices but another index, JPMorgan Sovereigns has been added to the collection below.
Graphing Dividends vs. Price
Each graph below shows monthly points of comparison between annual projected dividends resulting from $10,000 invested as $1,000 each in the top ten high yield stocks (blue points) versus the total prices of one share of each of the ten stocks (green points) by index. Grouped together the graphs display the wild gyrations of eight indices.
Stocks comprising each Index
The following charts display the ten stocks comprising each index as of 8/18/ or 8/19/2011 and their projected annual dividends. Yield data for the Dow, NASDAQ, and S&P 500 index stocks is reported as of 8/18 from www.idexarb.com. Russell, Sectors, Aristocrats, NYSE International, and JPMorgan Sovereigns yield data is reported as of 8/19 from Yahoo Finance. Variations in divided projections from the same stock on separate lists result from data reported from separate sources. For example, CINF's projected annual dividend is $1.61 and the share price is $25.71 in the 8/18/11 indexarb.com database. However, CINF's projected annual dividend is $1.60 at $25.59 per share in the 8/19/11 Yahoo Finance data. This month twelve stocks appear on two lists each: Abbott Labs (NYSE:ABT); Intel (NASDAQ:INTC); Johnson & Johnson (NYSE:JNJ); Proctor & Gamble (NYSE:PG); Merck (NYSE:MRK); CenturyLink (NYSE:CTL); Pitney Bowes (NYSE:PBI); Cincinnati Financial (NASDAQ:CINF); Invesco Mortgage (NYSE:IVR); American Capital (NASDAQ:AGNC); Armour Residential REIT (NYSE:ARR); Frontier Communications (NASDAQ:FTR).
NASDAQ 1000 Index Dogs
Shown are current top ten yielding stocks primarily from the Technology and Service Sectors. Seagate Technologies (NASDAQ:STX) is tops for August yielding 6.80% on this index. The annual projected dividend totals surpassed the aggregate one share each price totals in June.
Dow Industrial Index Dogs
Below are the current Dow Dogs. AT&T (NYSE:T) is tops with a yield of 6.15% on this index. The Dow Dog dividend versus price history reveals dividends from $10,000 invested as $1,000 each in the top ten yielding stocks moving higher in August than the sum price totals of one share each of those ten stocks.
JPMorgan New Sovereigns Dogs
These are the top dividend paying stocks that according to Thomas Lee, an equity strategist with JPMorgan, show less risk of default than the sovereign U.S. government based on five-year credit spreads, free cash flow yields exceeding bond yields, ratings of overweight by JPMorgan, and showing upside to their target prices. This month Merck (MRK) tops the list by yield at 4.21%. Graphed and listed below are the dividends projected from $10,000 invested as $1,000 each in top ten yielding stocks as of August compared to the aggregated total prices of one share of each of the ten. Note that the likelihood of dividend totals surpassing price totals grew closer in August but is still remote. Will they ever meet? Could that happen at the $500 level?
(Click to enlarge)
S&P 500 Aristocrats Dogs
These are the ten top yielding stocks from companies paying and increasing dividends each year for 25 years or more on the S&P 500 Index. CenturyLink (CTL) is tops in yield at 8.61% on this index. The graph shows dividend totals surpassing price totals in August like the Dow Dogs.
S&P 500 Index Dogs
Here are the top ten S&P 500 dividend paying stocks without regard to length of dividend payments or increases. Even by a top yield only standard from the entire S&P 500 list, three Aristocrats make the list. Frontier Communications (FTR) is tops with 10.45% yield on this index. Dividends from $10,000 invested in top ten yielding stocks as of this index have held well above the aggregated total prices of one share each all year and are diverging further as of August.
NYSE International 100 Index Dogs
These ten European based companies are listed on the NYSE showing the highest dividend yields as of August 19. YPF Sociedad Anonima Common Stock (NYSE:YPF) is tops with a yield of 9.35% on this index. The annual projected dividend totals have surpassed the aggregate total single share prices all year for this index. Dividends began a move higher as prices moved lower in March. They are now nearly as divergent as the S&P 500 Dogs.
Top Dog Stocks by Sectors
This list has top dividend payers regardless of index limited to three stocks from each of nine sectors. These top ten include three financials (from the Russell Index), three basic material firms, two service companies, and two technology companies (one from the S&P index). Invesco Mortgage (IVR) is tops by yield on this index at 22.8% as of August 19. Annual projected dividend totals for $1000 invested in each stock blow away the aggregate total single share prices each month and have begun to diverge further with little change in price. This divergence is caused by lower priced stocks with high dividends replacing stocks on the list whose prices increased. Thus the total price paid remains fairly constant for a new basket of high yielding stocks each month.
Russell 2000 Index Dogs
These financial firms pay huge dividends. This month Invesco Mortgage tops this list too at 22.8%. In previous months American Capital Agency Corp has been the leader with yields between 18% and 20%. This index reveals even more divergence than the sectors list. Here again the total price paid remains fairly constant (even decreases) for a new basket of high yielding stocks each month.
Responding to Duke1981's first ever SA posted request to "add relative financial data on the companies selected" for last week's Seeking Alpha article has perhaps revealed a simple tool to detect investment risk when considering the purchase any 10 Dogs of the Index stocks with the highest dividend yield at the beginning of the year.
JPMorgan's Thomas Lee' has pronounced the New Sovereigns to be of lower risk than U.S. Treasury Bonds. The graph shown for those JPMorgan New Sovereign stocks displays the aggregate of ten single share prices to be higher than the projected dividends from $1,000 invested in each of the ten. By that standard of gyration, the eight indexes surveyed would rank themselves in the following order from low to high risk:
- JPMorgan New Sovereigns Dogs
- S&P 500 Aristocrats Dogs
- Dow Industrial Index Dogs
- NASDAQ 1000 Index Dogs
- NYSE International Index Dogs
- S&P 500 Index Dogs
- Top Dog Stocks by Sectors
- Russell 2000 Index Dogs
Perhaps this information reviewed monthly can be one step toward Robert Schiller's admonishment to "make conservative preparations for possible bad outcomes."
Disclaimer: This article is for informational and educational purposes only and shall not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security.
Disclosure: I am long MRK, T, VZ, CVX, JNJ, INTC.