Dogs Of The Russell 1000 Year End Update

by: Fredrik Arnold

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 for the Russell 1000 Index reveal low yielding stocks whose prices increase (or whose dividends decrease) as candidates to be sold off once each year in order 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 Russell 1000 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.

Instant investment wisdom from the Russell 1000

Listed below are the top thirty Russell 1000 stocks by yield as of 12/30/11 per Yahoo Finance data. Russell Investments states that the Russell 1000 Index offers investors access to the extensive large-cap segment of the U.S. equity universe, representing approximately 90% of the U.S. market.

(Click to enlarge)

For December, eight of the top ten stocks in this index paying the big dividends are financial sector firms. Of the top thirty Russell 1000 dividend payers, just six are non-financial companies. Two consumer goods, two services, one technology, and one industrial are the non financial sectors represented. This index is updated quarterly and the next revision will be in January.

2011's vertical moves by Russell 1000 index dividend payers

Over the first nine months of 2011, three different firms bubbled to the top of the list. Since my October list update to the Russell 1000 list, AGNC has stayed on top.

A notable move by Lockheed Martin showed its stock price rising from $74 to $80.90 for a 9.3% gain in the past three months.

Color code shows: (Yellow) firms listed in first position at least once between January and November 2011; (Cyan Blue) firms listed in tenth position at least once between January and November 2011; (Magenta) firms listed in twentieth position at least once between January and November 2011; (Green) firms listed in thirtieth position at least once between January and November 2011. Duplicates are depicted in color for highest ranking attained.

(Click to enlarge)

(Click to enlarge)

(Click to enlarge)

(Click to enlarge)

2011 dividend vs. price results for Russell 1000 index top 10

Below is a graph of the relative strengths of the top ten Russell 1000 index stocks by yield as of December 30, 2011. Twelve 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.

(Click to enlarge)

October's update from Russell 2000 to 1000 components forced the annual projected dividend totals for $1000 invested in the top ten Russell stocks to drop dramatically toward their aggregate total single share prices. The bulls returned to the Russell index in December evidenced by dividend yields dropping as stock prices increased.

Will price gains be rampant on the Russell in 2012? Stay tuned.

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

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. Prices and returns on equities in this article are listed without consideration of fees, commissions taxes, penalties, or interest payable due to purchasing, holding, or selling same.