Seeking Alpha
Dividend investing, growth, momentum
Profile| Send Message|
( followers)  

<< Return to Part 2

Two articles in recent weeks described consolidated year to date results from the top 10 high yield stocks comprising (Dog) stocks in each of seven and eight indices. One other article concluded by ranking eight indexes by risk from low to high:

  1. JPMorgan New Sovereigns Dogs
  2. S&P 500 Aristocrats Dogs
  3. Dow Industrial Index Dogs
  4. NASDAQ 1000 Index Dogs
  5. NYSE International Index Dogs
  6. S&P 500 Index Dogs
  7. Top Dog Stocks by Sectors
  8. Russell 2000 Index Dogs

This is the third article in an eight part series launched as another step toward Yale economist Robert Schiller's admonishment to "make conservative preparations for possible bad outcomes". Part 1 reviewed the underlying top thirty component stocks of the Russell 2000 Index. Part 2 discussed the 3x9 Sectors 27 Dogs. Future articles in this eight part series will describe the complete component listings for all eight indices.

This article (Part 3) reviews the underlying top thirty component dividend stocks of the S&P 500 Index. This is the third highest yielding with presumed third highest risk of the eight indices listed above.

The "Dogs of the Index" Strategy Employed

Investopedia explains the strategic concept as:

An investing strategy that consists of buying the 10 dogs of the dow [dogs of the index] stocks with the highest dividend yield at the beginning of the year. The portfolio should be adjusted at the beginning of each year to include the 10 highest yielding stocks.

This strategy is so simple you don't need more than 15 minutes per year to decide which stocks to buy. Just two key metrics determine the yields that rank the index dog stocks:

  1. Stock Price.
  2. Annual Dividend.

Dividing the annual dividend by the price of the stock reveals the percentage amount by which each stock is ranked. After selecting a pool of twenty to thirty stocks that throw the highest dividend yields in any index, the investor follows, trades, and awaits the results of an investment in the lowest priced, highest yielding one-half (if 20) to one-third (if 30) of the pool. A third variable of broker commission of $10 per trade is deducted from every transaction to reveal net income each year.

Data from here reveals the following thirty stock portfolio as of September 15, 2011:

Top Dividend Stocks in the S&P 500 Index Pound

click on images to enlarge

The S&P500 Index of dividend paying stocks is a haven for utilities, technology, financials, and consumer goods. Four of the top ten stocks in the above list are telecoms, two make cigarettes for consumers, one makes business equipment for consumers, one sells business services, one is a financial firm, another in basic materials drills for oil and gas. Thus, at the top, this index is well diversified. Toward the bottom it gets rather utility heavy. Here is the breakdown of the 30 component stocks by business sector:

Technology: 5; Consumer Goods: 5; Services 1; Financial: 6; Basic Materials: 1; Healthcare: 1; Utilities: 11.

S&P 500 Index Dog Pound Component Profiles

Below are links to short summary business profiles of the thirty top S&P 500 Index dividend paying stocks for September 2011.

1. Frontier Communications Corporation (NASDAQ:FTR) [Sector: Technology; Industry: Telecom Services - Domestic]

2. CenturyLink, Inc. (NYSE:CTL) [Sector: Technology; Industry: Telecom Services - Domestic]

3. Windstream Corporation (NASDAQ:WIN) [Sector: Technology; Industry: Telecom Services - Domestic]

4. Pitney Bowes Inc. (NYSE:PBI) [Sector: Consumer Goods; Industry: Business Equipment]

5. R.R. Donnelley & Sons Company (NASDAQ:RRD) [Sector: Services; Industry: Business Services]

6. Altria Group Inc. (NYSE:MO) [Sector: Consumer Goods; Industry: Cigarettes]

7. AT&T Inc. (NYSE:T) [Sector: Technology; Industry: Telecom Services - Domestic]

8. Diamond Offshore Drilling, Inc. (NYSE:DO) [Sector: Basic Materials; Industry: Oil & Gas Drilling & Exploration]

9. Reynolds American Inc. (NYSE:RAI) [Sector: Consumer Goods; Industry: Cigarettes]

10. Health Care REIT Inc. (NYSE:HCN) [Sector: Financial; Industry: REIT - Healthcare Facilities]

11. Cincinnati Financial Corp. (NASDAQ:CINF) [Sector: Financial; Industry: Property & Casualty Insurance]

12. Pepco Holdings Inc. (NYSE:POM) [Sector: Utilities; Industry: Electric Utilities]

13. Verizon Communications Inc. (NYSE:VZ) [Sector: Technology; Industry: Telecom Services - Domestic]

14. Integrys Energy Group, Inc. (NYSE:TEG) Sector: Utilities; Industry: Gas Utilities]

15. Federated Investors Inc. (NYSE:FII) [Sector: Financial; Industry: Asset Management]

16. HCP, Inc. (NYSE:HCP) [Sector: Financial; Industry: REIT - Healthcare Facilities]

17. Leggett & Platt, Incorporated (NYSE:LEG) [Sector: Consumer Goods; Industry: Home Furnishings]

18. Eli Lilly & Co. (NYSE:LLY) [Sector: Healthcare; Industry: Drug Manufacturers - Major]

19. Hudson City Bancorp, Inc. (NASDAQ:HCBK) [Sector: Financial; Industry: Savings & Loans]

20. Entergy Corporation (NYSE:ETR) [Sector: Utilities; Industry: Electric Utilities]

21. Duke Energy Corporation (NYSE:DUK) [Sector: Utilities; Industry: Electric Utilities]

22. Ameren Corporation (NYSE:AEE) [Sector: Utilities; Industry: Diversified Utilities]

23. Lorillard, Inc. (NYSE:LO) [Sector: Consumer Goods; Industry: Cigarettes]

24. People's United Financial Inc. (NASDAQ:PBCT) [Sector: Financial; Industry: Savings & Loans]

25. American Electric Power, Inc. (NYSE:AEP) [Sector: Utilities; Industry: Electric Utilities]

26. PPL Corporation (NYSE:PPL) [Sector: Utilities; Industry: Electric Utilities]

27. Progress Energy, Inc. (NYSE:PGN) [Sector: Utilities; Industry: Electric Utilities]

28. SCANA Corp. (NYSE:SCG) [Sector: Utilities; Industry: Diversified Utilities]

29. FirstEnergy Corp. (NYSE:FE) [Sector: Utilities; Industry: Electric Utilities]

30. Exelon Corp. (NYSE:EXC) [Sector: Utilities; Industry: Diversified Utilities]

Track the Leaps and Tumbles of The S&P 500 Dogs

Over the past nine months just two firms have topped off this dividend yield based list. Color code shows: (Yellow) firms listed in first position at least once between January and September 2011; (Cyan Blue) firms listed in tenth position at least once between January and September 2011; (Magenta) firms listed in twentieth position at least once between January and September 2011; (Green) firms listed in thirtieth position at least once between January and September 2011. Duplicates are depicted in color for highest attained rank.

Firms do come and go from the list Lorillard (LO) was number 5 on the yield list in January and is gone as of September hopefully due to a large increase in stock price. Others disappearing from the top 30 between January and September include BMY, PNW, NI, ED, and NI.

September Dividend vs Price Results for S&P500 Index Top Dividend Paying 10

Now in September Frontier Communications tops this list at 10.67% Yield. Annual projected dividend totals for $1000 invested in each stock are within $500 of the aggregate total single share prices and have begun to converge much as they did in April and May. This convergence signals stock prices rising thus reducing dividend yields and the number of shares purchasable with a fixed investment amount of $1000. It can also signal a reduction in dividends as befell HCBC between April 22 and May 21, 2011.

Perhaps the Annual projected dividend totals for $1000 invested in the top ten of the S&P 500 stocks will continue to converge toward the aggregate total single share prices in October. Compared to the dramatic moves displayed by the Russell 2000 and 3x9 sector indices, the S&P 500 Dogs are tame. In October another review of the 30 S&P 500 dividend stocks will be reported.

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.

Continue to Part 4 >>

Source: Dogs of the Indices In Depth Part 3: High Yielding S&P 500 Index Dogs