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

This article supplies missing price information referenced in my September 30 article. Last month a Seeking Alpha reader requested that I "add relative financial data on the companies selected" for my graphs comparing seven sectors by annual yield projections. That request led to the development of a simple tool to chart investment risk. The tool is used as a gauge prior to the purchase of any 10 Dogs of the Index stocks with the highest dividend yield at any point during the year.

As a once per year trading system triggered by yield, the Dogs of the Index strategy inspired this article and the risk gauge. The dogs strategy reveals low yielding stocks whose prices increase (or whose dividends decrease) to be sold off once each year to sweep gains and reinvest the seed money into higher yielding stocks in the same index. 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 declares the percentage yield by which each dog stock is ranked. Thus investors, having selected their portfolios of five or ten stocks in any one index, are able to follow, trade, and await the results from their investments in the lowest priced, highest yielding stocks selected.

The investment risk tool is constructed on a given date thus: (1) Add the single share prices of the top ten stocks on an index list. Then, (2) add the total annual dividend amounts projected from $1000 invested in each of those ten stocks. Finally, (3) compare the resulting two numbers.

The standard of comparison resulting from those numbers was established in July, when JPMorgan's Thomas Lee pronounced the JPMorgan New Sovereigns to be of lower risk than U.S. Treasury Bonds. Friday, July 22, 2011, Thomas Lee, an equity strategist with JPMorgan, published a note titled Corporates are the New Sovereigns: 22 stocks to own around sovereign default.” The Barron's article covering Lee's announcement defined a Sovereign as an entity which can print money or tax at will. Lee's report listed 22 corporate stocks that 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.

The August graph shown for those JPMorgan New Sovereign stocks displays aggregate ten single share prices to be higher than projected dividends from $1,000 invested in each of the ten. By that standard of divergence, eight indexes surveyed in August ranked themselves in the following order from low to high risk:


Perhaps this information reviewed monthly can be one step toward Yale economist Robert Schiller's admonishment to "make conservative preparations for possible bad outcomes."

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 audacious gyrations of the eight indices.

Stocks comprising each Index

The following charts display prices and projected annual dividends for ten stocks comprising each index surveyed 9/9/11 to 9/23/11. Yield data for the Dow, NASDAQ, and S&P 500 index stocks is from here. Russell, Sectors, Aristocrats, NYSE International, and JPMorgan Sovereigns yield data is from Yahoo Finance. Variations in dividend projections from the same stock result from data reported from separate sources and dates. For example, PBI projected annual dividend is listed as $1.50 at $20.25 in the 9/15/11 database used for the S&P 500 Index, and as $1.48 at $18.79 in the 9/23/11 Yahoo Finance data used for the S&P 500 Aristocrats Index.

This month twelve stocks repeat on two lists each: Abbott (ABT); Merck (MRK); Intel (INTC); Johnson & Johnson (JNJ); Procter & Gamble (PG); CenturyLink (CTL); Pitney Bowes (PBI); Invesco Mortgage (IVR); American Capital (AGNC); Armour Residential REIT (ARR); Frontier Communications (FTR); Teekay Tankers (TNK).

Click to enlarge

Click to enlarge



JPMorgan New Sovereigns Dogs

These are the top dividend paying stocks that -- according to 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.

Again in September, Merck (MRK) tops the list by yield at 4.90% as of 9/23/11. Graphed and listed below are the dividends projected from $10,000 invested as $1,000 each in top ten yielding stocks in September 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 September but is still remote. Will they ever meet? Could that happen at the $400 level?

Click to enlarge


Dow Industrial Index Dogs

Below are the current Dow Dogs. AT&T (T) is tops, with a yield of 6.12% on this index as of 9/19/11. The Dow Dog dividend versus price history reveals dividends from $10,000 invested as $1,000 each in the top ten yielding stocks staying higher in September than the aggregate price totals of one share each of those ten stocks, which moved even lower.

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 on this index, at 8.69% as of 9/15/11. The graph shows dividend totals still surpassing price totals in September but converging slightly.

Click to enlarge


NASDAQ 1000 Index Dogs

These are top ten yielding stocks primarily from the Technology and Service Sectors. Seagate Technologies (STX) is tops in September, yielding 5.99% on this index as of 9/16/11. The annual projected dividend totals from $1000 invested in each surpassed the aggregate one share each price totals in June. These tracks achieved maximum divergence in August. Recently, NASDAQ dividends and price have nearly converged in September coming within $22 of their July divergence.

Click to enlarge


NYSE International 100 Index Dogs

These ten European based companies listed on the NYSE show their dividend yields as of 9/16/11. This month, YPF Sociedad Anonima (YPF) was replaced at the top of this index by Telefonica, S.A. (TEF) yielding 8.80%. 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. Dividends retreated as prices moved slightly higher as of September 16.

Click to enlarge


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. Two Aristocrats, CTL and PBI, make the list. Frontier Communications (FTR) is tops with 10.67% yield on this index, as of 9/15/11. Dividends from $10,000 invested in top ten yielding stocks on this index have held well above the aggregated total prices of one share each all year. The tracks diverged widest in August but are converging slightly in September.

Click to enlarge


Top Dog Stocks by Sectors

This list includes top dividend payers regardless of index limited to three stocks from each of nine sectors. The top ten include three financial firms (from the Russell Index), three basic material firms, two services companies, and two technology companies. Invesco Mortgage (IVR) is tops by yield on this index at 23.83% as of 9/9/11.

Annual projected dividend totals for $1000 invested in each stock blow away the aggregate total single share prices each month, and have continued 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.

Click to enlarge


Russell 2000 Index Dogs

These financial and service firms pay huge dividends. This month Invesco Mortgage (IVR) tops this list too at 23.83% yield as of 9/9/11. Earlier in 2011, American Capital Agency Corp. was 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 higher yielding stocks each month. That decreasing price trend does not bode well for Dog investors who yearn for prices to skyrocket after they purchase shares, so the yields plummet and their gains are maximized come trading time.

Click to enlarge


Conclusion

A reader request to "add relative financial data on the companies selected" for my August article comparing seven sectors by annual yield projections has inspired a simple tool to gauge investment risk. The tool is best applied prior to the purchase of any 10 Dogs of the Index stocks at any point during the year. Using JPMorgan's New Sovereigns as the baseline standard of divergence, the eight indexes surveyed rank themselves in the following order from low to high risk in September:

Click to enlarge

This information will continue to be reviewed monthly as 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.

Source: Audacious Dividend Vs. Price Gyrations Of Dog Stocks In 8 Indices (As Of October 1)