Dogs Of The S&P 500 2011 Closeout

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 S&P 500 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 S&P 500 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 S&P500

Listed below are the top thirty S&P 500 stocks by yield as of 12/30/11 per data. McGraw Hill, publisher of the Index states "Standard & Poor's strives to provide investors who want to make better informed investment decisions with market intelligence in the form of credit ratings, indices, investment research and risk evaluations and solutions." The company states that the index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities.

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For December, four of the top ten stocks paying the biggest dividends in this index are technology firms. Frontier Communications (NYSE:FTR) has topped this list at 9 to 10% yields for eleven months this year. It tops again at 14.56% for December. The remaining six include three consumer firms, one financial, one basic materials, and one service.
This month PCL, NYX, & HRB replaced MRK, KIM & DUK on the S&P500 top 30 list by yield.

2011's vertical moves by S&P 500 index dividend payers

In 2011, two firms exchanged places at the top of the list-- FTR and WIN.
A notable move by Lilly (NYSE:LLY) showed its stock price rising from $37.85 to $41.56, for a 17.72% gain from November 11 to December 30.
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.

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2011 dividend vs. price results for S&P 500 index top 10

Below is a graph of the relative strengths of the top ten S&P 500 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.

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The S&P 500 December top ten yield components signaled bullish market divergence with both dividend yields and aggregate total single share prices rising.

This phenomenon is explained by top S&P dog share prices dropping to throw higher yields while a $41.45 priced RAI stock replaced a $5.75 HCBK stock to add price power to the top ten list as RAI took over tenth place.

Perhaps the bulls will continue to walk on in the month to come and the share prices will really grow up toward the dividend yields. Stay tuned.

Disclosure: I am long T.

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.