Last week David Fish published his Dividend Champions: 26 Increases Expected By March 30 on this Seeking Alpha site. He defines Champions as "companies that have paid higher dividends for at least 25 straight years." This article utilizes the dogs of the index strategy to sort David's Top ten Champions as of January 13 into a suitable grouping to trade.
One aim of this article is to help answer the question, "which dividend stocks are good, better, best, bad or ugly?" This article also aims to provide strong evidence of the need to heed Yale professor Robert Shiller's observation: "People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes."
The Dogs of the Index Strategy
Two key metrics determine the yields that rank 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. Investors select portfolios of five or ten stocks in any one index by yield to trade. They await the results from their investments in the lowest priced, highest yielding stocks they selected and pray that the price of every stock they now own climbs (having locked in a high yield percentage at purchase).
This Dogs of the Index strategy, popularized by Michael B. O'Higgins in the book "Beating The Dow" (HarperCollins, 1991), reveals how low yielding stocks whose prices increase (and whose dividend yields therefore decrease) can be sold off once each year to sweep gains and reinvest the seed money into higher yielding stocks in the same index
Classic Dogs of the Index theory trades selected Dow stocks at the start of the trading year. Thus, the Dow is used as a standard of comparison to conclude this piece.
Comparative Methods Used
First, David Fish's Champions list of December 30th showing 102 companies paying increasing dividends for 25 consecutive years or more is sorted by yield to reveal the top thirty stocks. Market performance of these thirty selections is then reviewed using four months of historic projected annual dividend history.
Thereafter, this article assesses the relative strengths of David Fish's Top ten Dividend Champions vs. the Dogs of the Dow December stock list. Annual dividends from $1000 invested in the ten highest yielding stocks in each index versus the aggregate single share prices of the top ten stocks in each index provides a measure of risk.
Fish Dividend Champions
Mr. Fish's ten Champion stocks paying the biggest dividends for December include firms representing four market sectors. The top stock Old Republic International (NYSE:ORI) is one of five in the financial sector. The balance of the top ten include one technology, one service and three consumer goods firms The full list of 30 stocks has, two service, two healthcare, eight consumer goods, nine financial, one basic materials, one industrial, six utilities, one technology and no conglomerates representing the market sectors.
Vertical Moves of Fish Dividend Champion Stocks
Going back four months, two firms, one financial, Old Republic International and one consumer, Pitney Bowes Inc. (NYSE:PBI) claimed the top of this list by yield. The middle of the list shows bolder vertical moves. The notable price gain made by Sysco (NYSE:SYY) moving from eighteenth place by yield in October to twenty-second In December by virtue of a price gain from $26.67 to $29.47 pales compared to Nucor (NYSE:NUE) moving from twenty first in October to thirtieth in January as its price went up from $35.88 to $41.86 or 16.7%. Furthermore, Abbott Laboratories (NYSE:ABT) in 27th place in October at $52.73 fell off the top 30 yield chart to thirty-second place in January as its price climbed to $56.23 or 6.63%. Conversely Diebold (NYSE:DBD) lost value moving from thirtieth place at $32.27 in November to twenty-second place at $30.32 in January.
Color code shows: (Yellow) firms listed in first position at least once between between October 2011 and January 2012; (Cyan Blue) firms listed in tenth position at least once between between October 2011 and January 2012; (Magenta) firms listed in twentieth position at least once between between October 2011 and January 2012; (Green) firms listed in thirtieth position at least once between October 2011 and January 2012. Duplicates are depicted in color for highest ranking attained.
January Dividend vs. Price Gap for Fish Champions vs. Dow
Below are graphs of the relative strengths of the top ten Fish Dividend Champion index stocks by yield and price from October to January and to those of the Dow. Using four months of historic projected annual dividend history from $1000 invested in the ten highest yielding stocks each month and the aggregate single share prices of those ten stocks creates the data points for each month shown in green for price and blue for dividends.
Conclusion: Another Reliable Team of Dogs on The Run
This Champions collection of 30 reliable dividend payers shows steadily stable pricing during recent unsettled times. The Dow index on the other hand exhibited near convergence as dividends from $1k invested in the top ten increased while aggregate total single share prices declined over the past four months. The Champions index pays comparatively higher dividends at a lower per share price than the Dow.
At the end of each month, two summaries conclude this new series of articles showing comparative results of yield and price for six indices: Carnevale Power 25; Fish Dividend Champions; Contenders; Challengers; Dow 30 Index.
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, unless noted otherwise, are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.