Top Dividend Champions, Contenders And Challengers Combined Vs. Dogs Of The Dow In January

 |  Includes: CMLP, TCAP, TEF
by: Fredrik Arnold

Recently Seeking Alpha published David Fish's Dividend Champions (26), Contenders (24) and Challengers (30) articles describing dividend increases expected from these lists. Fish defines his CCC group as follows: "Champions are companies that have paid higher dividends for at least 25 straight years; Contenders have streaks of 10-24 years; Challengers have streaks of 5-9 years."

This article combines the top 10 yielding stocks from each of those three lists then utilizes the Dogs of the Index strategy to sort the combined index of those 30 into a suitable grouping of 10 to trade. In an ongoing effort to 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 10 stocks in any one index by yield to trade. Investors 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, the combination of David Fish's lists (from here) as of December 30, of 102 Champions, 145 Contenders, and 202 Challengers are updated with pricing information from Yahoo Finance as of January 13 then sorted by yield to reveal the top 30 stocks. Market performance of these 30 selections is then reviewed using four months of historic projected annual dividend history.

To conclude, this article assesses the relative strengths of David Fish's Top 10 Dividend CCC Combination vs. the Dogs of the Dow January stock list. Annual dividends from $1000 invested in the 10 highest yielding stocks in each index versus the aggregate single share prices of those stocks provide measures of risk.

Fish Dividend CCC Combination

(Click charts to enlarge)

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Mr Fish's top 10 CCC Combination stocks paying the biggest dividends for January include companies representing five market sectors. The top stock is Inergy LP (NRGY) a utility sector equity. The balance of the top 10 include one service, two consumer goods, two basic materials, and four financial companies. The full list of 30 stocks has two service, no healthcare, five consumer goods, 14 financial, six basic materials, no industrial, two utilities, one technology, and no conglomerates representing the market sectors.

Vertical Moves in Fish Dividend CCC Combination Stocks

Going back four months, three companies, Triangle Capital (NYSE:TCAP) in financial, Telefonica S.A. (NYSE:TEF) in technology and Inergy LP, a utility, claimed the top of this list by yield. As of December 30, TEF was dropped for lack of a dividend increase so now two companies retain the yellow tint. The action is primarily at the top of the list. A notable move was made by Triangle Capital in the past four months going from first place by yield to fourth by virtue of a price gain from $16.17 to $19.23 or 18.9%. Conversely Inergy LP lost value moving from fourth place at $26.68 in November, to first place at $23.24, losing (12.9%) by January. Of course, the structural constraints of this list prevent any one stock from progressing up or down any more than nine positions. That is because this combined list requires a stock to stay in the top 10 as a challenger, contender or champion in order to remain on board.

Color code shows: (Yellow) companies listed in first position at least once between October 2011, and January 2012.; (Cyan Blue) companies listed in 10th position at least once between October 2011, and January 2012.; (Magenta) companies listed in 20th position at least once between October 2011, and January 2012.; (Green) companies listed in 30h position at least once between October 2011, and January 2012. Duplicates are depicted in color for highest ranking attained.

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January Dividend vs. Price Results for Fish CCC Combinations vs. Dow Dogs

Below is a graph of the relative strengths of the top 10 Fish Dividend CCC Combined index stocks by yield as of January 12, 2012, compared with those of the Dow. Using four months of historic projected annual dividend history from $1000 invested in the 10 highest yielding stocks each month and the total single share prices of those 10 stocks creates the data points for each month shown in green for price and blue for dividends.

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Conclusion: A Revolving Team of Dogs Runs in Place

This CCC Combination collection of 30 dividend payers shows increasing prices resulting in decreasing dividends while maintaining a wide divergence between total projected annual dividends from $1000 invested in each of the 10 stocks versus their aggregate single share prices. The Dow index exhibited near convergence of dividends and price over the past month. The CCC top 10 Combinations index pays comparatively 1400% higher dividends per share price than the Dow with 14 times the risk, as well.

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.

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. Unless otherwise noted, 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.