Dividend Dogs Of The JPMorgan Sovereigns In November

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 |  Includes: ABT, AMGN, COST, CQP, CSX, DHR, FCX, HON, HSY, INTU, KO, LMT, MDT, MRK, NSC, ORCL, PEP, RTN, TXN, UNP, UPS, UTX
by: Fredrik Arnold

Any portfolio of stocks is only as strong as the grounds for its collection. Like a building is planned and built to suit its location, so must a stock portfolio be built to suit the owner's purpose. Some investment strategists recommend dividend paying stocks. Recent articles have investigated and compared projected dividend yields from eight indices in an effort to sort out an answer to the question, "which dividend stocks are good, better, best, bad or ugly?"

Numerous well-paid financial wizards busy themselves attempting to gain followers and credibility for their chosen collections of equities. Some are:

Russell Investments, a subsidiary of Northwestern Mutual Life Insurance, publishes the Russell 1000 index.

Standard and Poor's division of McGraw Hill publishes several indices including the S&P 500 and the S&P 100.

Dow Jones, a CME Group Company, aggregates the Dow Jones Industrial index of 30 stocks commonly called the DOW.

NASDAQ, the nation's first electronic stock exchange was once the National Association of Securities Dealers Automated Quotations.

NYSE the New York securities Exchange with Euronext has five divisions specializing in financial transaction systems and information.

AMEX, the American Stock Exchange is third largest in the U.S. is now part of NYSE Euronext.

CBOT the Chicago Board of Trade is a contract market division of the CME Group.

* Most investment houses, such as JPMorgan, Morgan Stanley, Merrill Lynch, Morningstar, Goldman Sachs, Edward Jones, Fidelity and Vanguard, collect lists of multi-purpose equities.

Instant Investment Wisdom

To determine the best of the best dividend stocks, many investors rely on a once per year trading system triggered by yield, called the "Dogs of the Index" strategy. This strategy gives the investor the tactical advantage of obtaining all the wisdom and knowledge of the well-paid wizards of investment and publishing for free merely by choosing the existing collection of equities built by the experts.

Charts below reveal 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 JPMorgan Sovereigns 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, the investor is able to follow, trade, and await the results from an investment in the lowest priced, highest yielding five or ten stocks in the index.

JPMorgan Sovereigns Index Revelations for November

Picks below are as of 11/11/11 by Yahoo Finance data ranking the top dividend yielding stocks listed on the JPMorgan Sovereigns Index. On July 22, 2011, Thomas Lee, an equity strategist with J.P. Morgan, 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 J.P. Morgan, and showing upside to their target prices.
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Two of the top ten stocks paying the biggest dividends on the JPMorgan Sovereigns again for November are industrial firms. For the first nine months of 2011, Merck (NYSE:MRK), a healthcare firm, topped this list by yield. However, by raising its dividend $1 annually, the industrial firm, LMT, came in at at 5.08% yield as of market close October 24 to put an industrial firm at the top. LMT is still there in November with a 5.17% yield.

For these twenty two JPMorgan Sovereign dividend payers, four technology companies, three consumer goods, no financial, five services, two basic materials, two industrial, four health care, no utility, and two conglomerates represent the market sectors.

November Vertical Moves in JPMorgan Sovereigns Stocks

As mentioned above, LMT which replaced MRK at the top of the list in October, remains there. Color code shows: (Yellow) firms listed in first position at least once between January and November 2011; (Cyan Blue) firms listed in fifth position at least once between January and November 2011; (Magenta) firms listed in tenth position at least once between January and November 2011; (Green) firms listed in fifteenth position at least once between January and November 2011. Duplicates are depicted in color for highest ranking attained. Until JPM's Thomas Lee updates it, this list is fixed at these same 22 stocks.

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Jumping JPMorgan Sovereigns Dogs

Four of these 22 stocks fetched healthy paper returns between October 24 and November 11:

• HON while retaining it's ninth position by yield grew $3.07 (5.9%) per share in price and added $.16 (12%) to its dividend.

• UTX at number eleven dropped to number twelve by virtue of of a $3.18 (4.15%) per share price gain.

• NSC at number twelve dropped to number thirteen by virtue of of a $5.11 (7.24%) per share price gain.

• UNP at number sixteen dropped to number eighteen by virtue of of a $5.47 (5.62%) price gain.

November Dividend vs Price Results

Below is a graph of the relative strengths of the top ten JPMorgan Sovereigns index stocks by yield as of November 11, 2011. Using eleven months of historic projected annual dividend history from $1000 invested in the ten highest yielding stocks each month and the total single share prices of those ten stocks creates the data points for each month shown in green for price and blue for dividends.

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Conclusion: See How They Fetch

The November JPMorgan Sovereign Index component update shows a fairly bullish price increase accompanied by a barely bullish dividend drop. Market tendencies exhibited over the past two months show increasing divergence of both dividends from $1k invested in the top ten from aggregate total single share prices. Notice how the January to July pattern of price diverging above dividends has returned to this index. Stay tuned.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.