Dow Analysts Forecast 44.21% More Gain With Intel In Small Dogs For April

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Includes: APPL, BA, CSC, CSCO, CVX, GS, HD, IBM, INTC, JPM, MRK, MSFT, NKE, PFE, PG, TRV, V, VZ, WMT, XOM
by: Fredrik Arnold

Summary

Top 10 Dow dog yields averaged 3.85% per indexArb.com or 3.76% per Yahoo.com as of March 28. Top 11 were: INTC and PG (tied); BA; XOM; MRK; IBM; CSCO; PFE; CAT; VZ; CVX.

IndexArb and Yahoo both projected bullish charges for top 10 Dow dogs. Analyst 1yr. targets disclosed 18.12% average upsides from top ten while four averaged a 9% downside.

Net gains for the top 10 ranged from 10.62% to 27.60% from HD, MSFT, INTC, V, JPM, MRK, NKE, GS, AAPL, and PFE.

Dow stocks by yield showed 81.97% or 151.57% more net gain from $5K invested in the lowest-priced five than from the same investment in all 10 top yielders.

Howdy Do Dow 30

Yield (dividend / price) results from indexArb.com and Yahoo.com for 30 Dow industrial stocks as of market closing prices March 28 led to the actionable conclusions detailed below.

Investors have utilized Michael B. O'Higgins dividend dog ranking system to select portfolios of five or ten stocks in the Dow Index to trade as of the last day in December since 1991, when he wrote the book Beating The Dow (HarperCollins). Thereafter dog investors awaited annual results from their investments in the lowest priced, highest yielding stocks and trusted that the price of every stock they now owned would climb higher (having locked in a high yield percentage at purchase).

Now named Dogs of the Dow, O'Higgins' system works to find bargains in any collection of dividend paying stocks. Incorporating analyst price upside estimates into the dog analysis has expanded the dog stock selection process to include popular growth equities, if so desired.

Investor Empowerment from Dow Dogs

McGraw Hill Financial, publisher of this index, states: "The Dow®, is a price-weighted measure of 30 U.S. blue-chip companies. The Dow® covers all industries with the exception of transportation and utilities, which are covered by the Dow Jones Transportation Average™ and Dow Jones Utility Average™.

While stock selection is not governed by quantitative rules, a stock typically is added to The Dow® only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors. Maintaining adequate sector representation within the indices is also a consideration in the selection process."

Dog Metrics Rate Dow Stocks Two Ways by Yield

Top ten Dow dogs by yield from IndexArb.com after February included six of nine business sectors: basic materials (2); technology (3); healthcare (2); conglomerates (1); consumer goods (1); industrial goods (1). Financials, & services did not make the top ten and Dow-Jones rates Utilities in a separate index.)

IndexArb describes their dividend estimating strategy thus: "The "Estimated Dividend" for each stock below is our best estimate of the per share amount that will be paid during the next year, beginning on Mar-29-2016. Most companies pay dividends on a quarterly frequency; some pay annually or semi-annually. The amount, timing, and growth of each dividend is forecasted from several years of dividend history, provided, of course, that the company has an established track record. Otherwise, the most recent (perceived) dividend policy is extended."

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Top ten Dow dogs by yield from Yahoo.com/Finance after February lost one in the consumer goods sector to gain one in technology. So unlike IndexArb, with six sectors represented, Yahoo tallied five of nine: two basic materials firms, four technology firms, one conglomerate, two healthcare, and one industrial goods firm. (In the yahoo scheme consumer goods, financials, & services did not make the top ten and Dow has Utilities in its separate index.)

It is safe to describe all the Yahoo Finance dividend estimates as "the most recent (perceived) dividend policy... extended."

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Both IndexArb.com and Yahoo.com after February, put the top two firms in the same order. Chevron Corp. (NYSE:CVX) [1] showed the best dividend yield as of market close March 28. A technology firm, Verizon (NYSE:VZ) [2], placed second per both ranking schemes.

Third through tenth place occupants were shuffled in the two lists. From third place on, IndexArb showed: Pfizer Inc. (NYSE:PFE) [3]; Caterpillar Inc. [4]; International Business Machines (NYSE:IBM) [5]; Cisco Systems [6]; Exxon Mobil Corp (NYSE:XOM) [7]; Merck (NYSE:MRK) [8] Procter & Gamble [9]; Boeing (NYSE:BA) [10].

Yahoo did CAT [3]; PFE [4]; CSCO [5]; IBM [6]; MRK [7] XOM [8]; BA [9]; INTC [10].

For March (as in January & February ) one slot changed the balance of the two lists. IndexArb put Procter & Gamble [9](NYSE:PG) in the top ten. However Yahoo had the technology sector representative, Intel Corp (NASDAQ:INTC) [10] in tenth to complete the dual, January IndexArb/Yahoo, top ten Dow dividend dog lists.

Dividend vs. Price Results for Dow Top 10

Relative strength by yield for the top ten Dow industrial index stocks was graphed below. Ten periods of historic projected annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks and the total single share price of those ten stocks created the data points for each period shown in blue for dividend and green for price.

Actionable Conclusions: Dow Top Dogs Charged Through March per Both (1) IndexArb, and (2) Yahoo!

IndexArb Dow dogs charged with projected annual dividend from $10k invested falling 5% after February. At the same time their single share price soared 6.6% to make the charge.

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Yahoo also projected a charging scenario as their Dow dog line-up, showed a 5.4 % lower annual dividend from $10k invested as $1K in each of the top ten, while the aggregate single share price for those ten rose 7% between March 1 and March 28.

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The differences between the IndexArb and the Yahoo chart peaks and valleys over time have been caused by the movement of high price stocks with large dividends in and out of the top ten. For example, in November the variation circled around a dogfight for ninth and tenth places. Variations in share price and annual dividends for General Electric Company at about $30/$1 held price and Coca Cola Co. at $42/$1.40 led to far lower prices on the IndexArb list. The Yahoo list, however, was pumped with Wal-Mart Stores at $60 /$2 and McDonald's $114/$3.56. So, the Yahoo price results were higher with dividends lower. In January, however, PG put it's $50 higher share price in the tenth slot per IndexArb, while lowly INTC occupied the tenth position in the Yahoo scheme to make the price peak for IndexArb.

Actionable Conclusion (3): Dow Dogs Are Overbought

The Dow dogs overbought condition (in which aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten) widened in January on the IndexArb chart while Yahoo Finance's graph narrowed the gap. The wider gap on the IndexArb graph was due to Procter & Gamble higher price and dividend in the mix instead of Intel place on the Yahoo chart. The January gap was estimated at $295 or 71.5% for IndexArb but $253 or 63% per Yahoo Finance. At the end of February both graphs widened: $327 or 80.75% on IndexArb but $284 or 71.3% per Yahoo Finance. March moved the IndexArb Dow gap to $396 or 102% while Yahoo had the Dow gap at $353 or 94%. Thus, the gap between these gaps continued to widen with the IndexArb charts in the lead.

The result is a lower average cost per dollar of annual dividend on IndexArb of $26.26 while the Yahoo list average cost per dollar of annual dividend was $26.81.

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This gap between high share price and low dividend per $1k invested shows an overbought condition. Meaning, no matter which chart you read, these are low risk and low opportunity Dow dogs. Until the Dow dividend from $10k invested as $1k in each of the top ten stocks exceeds the aggregate single share price of those stocks, market pressure continuing on the Dow augurs to shrink the gap.

Actionable Conclusions: (4): Wall St. Wizards Forecast A 6.52% Average Upside & (5) A 6.58% Average Net Gain from All 30 Dow Dogs Through March 2017

All thirty dogs from the Dow 30 Industrials were graphed below to show relative strengths by dividend and price as of March 28, 2016 and those projected by analyst mean price target estimates to the same date in 2017.

A hypothetical $1000 investment in each equity was divided by the current share price to find the number of shares purchased. The shares number was then multiplied by projected annual per share dividend amounts to find the dividend return. Thereafter the analyst mean target price was used to gauge the stock price upsides and net gains including dividends less broker fees as of 2017.

Historic prices and actual dividends paid from $30,000 invested as $1k in each of the stocks and the aggregate single share prices of those thirty stocks divided by 3 created data points for 2016. Projections based on estimated increases in dividend amounts from $1000 invested in the thirty Dow stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 3 created the 2017 data points green for price and blue for dividend.

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Analysts reported by Yahoo projected an 11% lower dividend from $10K invested as $1k in each dog of this group while aggregate single share price was projected to increase nearly 13.6% in the coming year. With price still projected higher than dividend, the analysts predicted Dow dogs extending their overbought condition one year out. (Personally, I think the Dow dogs are still due for a 25% to 30% market correction.)

The number of analysts contributing to the mean target price estimate for each stock was noted in the next to the last column on the chart. Three to nine analysts have historically provided the more accurate estimates.

A beta (risk) ranking for each analyst-rated stock was provided in the far right column on the above chart. A beta of 1 meant the stock's price would move with the market. Less than 1 showed lower than market movement. Higher than 1 showed greater than market movement. A negative beta number indicated the degree of a stock price movement opposed to the market direction.

Actionable Conclusions: (6) Analysts Allege 10 Dow Upsides Of 10.62% to 27.6%; (7) 4 Dow Downsides of -4.5% & -16.36%

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Actionable Conclusion (8): Ten Dow Dividend Dogs Go After 10.8% to 29.7% Net Gains As Of March 2017

Just two of the top yielding dividend Dow dogs were also verified as top gainers for the coming year by analyst 1 year target prices. So, this month, the dog strategy as graded by wall street analysts was 20% accurate.

Ten probable profit generating trades from $1k invested in each as revealed by IndexARB.com data by 2017 were:

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Pfizer Inc. was projected to net $296.99 based on dividends plus the median of annual price estimates from sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 2% more than the market as a whole.

Apple Inc. (OTC:APPL) was projected to net $237.53 based on a median target price estimate from thirty-seven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 365% more than the market as a whole.

Goldman Sachs (NYSE:GS) was projected to net $233.25 based on dividends plus a median target price estimate from twenty-four analysts less broker fees. The Beta number showed this estimate subject to volatility 37% more than the market as a whole.

Merck & Co was projected to net $188.78 based on dividends plus a median target price estimate derived from nineteen analysts less broker fees. The Beta number showed this estimate subject to volatility 25% less than the market as a whole.

JPMorgan Chase & Co (NYSE:JPM) was projected to net $182.19, based on dividends plus a median target price estimate by twenty-eight analysts plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 21% more than the market as a whole.

Intel Corp was projected to net $173.10 based on dividends plus a median target price estimate from thirty-five analysts less broker fees. The Beta number showed this estimate subject to volatility 3% more than the market as a whole.

NIKE (NYSE:NKE) was projected to net $165.03 based on estimates from thirty analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 36% less than the market as a whole.

Visa,Inc. (NYSE:V) was projected to net $149.28 based on a median target price estimate from thirty analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 8% more than the market as a whole.

Microsoft Corp. (NASDAQ:MSFT) was projected to net $129.42, based on a median target price estimate from thirty-two analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 4% greater than the market as a whole.

Home Depot. (NYSE:HD) was projected to net $108.01 based on target estimates from twenty-two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.

The average net gain in dividend and price less fees was over 20.15% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 7% more than the market as a whole.

Actionable Conclusion (9): (Bear Alerts) Analysts Projected Four Dow Dogs To Show Net Losses Averaging 7.7% By 2017

Probable losing trades revealed by Thomson/First Call in Yahoo Finance in 2017 were:

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The Travelers Co's Inc. (NYSE:TRV) was projected to lose $42.11 based on dividend and a median target price estimate from twenty-two analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 21% more than the market as a whole.

Wal-Mart Stores (NYSE:WMT) were projected to lose $50.97 based on dividend and a median target price estimate from twenty-five analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 81% less than the market as a whole.

International Business. Machines Inc. was projected to lose $72.56 based on dividend and a median target price estimate from twenty-one analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 34% less than the market as a whole.

Caterpillar Inc. was projected to lose $142.68 based on dividend and a median target price estimate from nineteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 6% more than the market as a whole.

The average net loss in price plus broker fees including annual dividends was predicted to be 7.7% on $4k invested as $1k in each of these four Dow dogs. This loss estimate was subject to average volatility 23% less than the market as a whole.

5 Small Dogs Of The Dow Showed 81.97% More March Gains per IndexArb, Or 151.57% More per Yahoo, from $5K Invested, than From The Same Investment In All Ten Dogs.

This 44.21% Higher Predicted Return for Yahoo Came From INTC Instead Of CAT Placing In The Yahoo 5 Small Dogs

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Top ten Dow dogs by yield from IndexArb.com after March included six of nine business sectors: basic materials (2); technology (3); healthcare (2); conglomerates (1); consumer goods (1); industrial goods (1).

Actionable Conclusions: Five Lowest Price High Yield Dow Dogs (10) Delivered 7.91% VS. (11) 4.35% Net Gains by All Ten by March 28, 2017 per IndexArb

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$5000 invested as $1k in each of the five Lowest priced stocks in the top ten dogs of the Dow kennel by yield were predicted by analyst 1 year targets to deliver 81.97% more net gain than the same amount invested in all ten. The second lowest priced top ten dog of the Dow, Pfizer Inc. , was projected to deliver the best net gain of 29.78%.

Lowest priced five dogs of the Dow stocks for March 28 were: Cisco Systems (NASDAQ:CSCO); Pfizer Inc. ; Merck & Co. ; Verizon Communications ; Caterpillar Inc. , with prices ranging from $27.90 to $75.32.

Higher priced five Dow dividend dogs per IndexArb for March 1 were: Procter & Gamble ; Exxon Mobil Corp. ; Chevron Corp. ; Boeing Company ; International Business Machines , whose prices ranged from $82.62 to $148.40.

This distinction between five low priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed for beating the Dow.

Small Dogs March Gains per Yahoo Boosted by INTC

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Top ten Dow dogs by yield from Yahoo.com/Finance after January tallied five of nine sectors in the top ten: two basic materials firms, four technology firms, one conglomerate, two healthcare, and one industrial goods firm.

Actionable Conclusions : Five Lowest Price High Yield Dow Dogs (12) Delivered 14.18% VS. (13) 5.64% Net Gains by All Ten by March 28, 2017 per Yahoo

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$5000 invested as $1k in each of the five Lowest priced stocks in the top ten dogs of the Dow kennel by yield were predicted by analyst 1 year targets to deliver 151.57% more net gain than the same amount invested in all ten. The second lowest priced top ten dog of the Dow, Pfizer Inc. , was projected to deliver the best net gain of 29.63%.

Lowest priced five dogs of the Dow stocks for March 28 were: Cisco Systems (NYSE:CSC); Pfizer Inc. ; Intel Corp. ; Merck & Co. ; Verizon Communications , with prices ranging from $27.90 to $53.40.

Higher priced five Dow dividend dogs per Yahoo for March 28 were: Caterpillar Inc. ; Exxon Mobil Corp. ; Chevron Corp. ; Boeing Company ; International Business Machines , whose prices ranged from $75.32 to $148.40.

This distinction between five low priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed for beating the Dow.

The added scale of projected gains based on analyst targets contributed a unique element of "market sentiment" gauging upside potential. It provided a here and now equivalent of waiting a year to find out what might happen in the market. Its also the work analysts got paid big bucks to do.

A caution is advised, however, as analysts are historically 20% to 80% accurate on the direction of change and about 0% to 20% accurate on the degree of the change.

The stocks listed above were suggested only as reference points for a Dow Industrial equities dog dividend stock investment research process in April, 2016. These were not recommendations.

See my instablog for specific instructions about how to best apply the dividend dog data featured in this article.---Fredrik Arnold

Gains/declines as reported do not factor-in any tax problems resulting from dividend, profit, or return of capital distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.

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Disclaimer: This article is for informational and educational purposes only and should 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 except as noted are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from www.dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.

Disclosure: I am/we are long CSCO, GE, INTC, PFE, VZ.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.