What is a dividend dog?
The "dog" moniker is earned in three steps: (1) any stock paying a reliable, repeating dividend (2) whose price has fallen to a point where its yield (dividend/price) (3) has grown higher than its peers (such as this Champion collection), is so tagged. Thus, the highest yielding stocks in any collection become known as "dogs."
May Champion Dogs
Yield (dividend/price) results from David Fish's Dividend Champions Index members (as of May 26 market closing prices) were paired with annual dividends projected by dripinvesting.org as of April 29. Results from that data charted below showed five of nine business sectors represented by ten top yield Champions: five financials; one technology; one service; two basic materials; one consumer goods. In the Morningstar scheme of eleven sectors, the top ten champions covered six: three real estate; one communications services; one consumer cyclical; two financial services; two energy; one consumer defensive. Those ten stocks posted yields averaging 4.68%.
Actionable conclusions by yield, target price upsides, and net gains were drawn below as top Champion dog selections for May were examined, step by step.
Actionable Conclusion (1) Ten Dividend Champion Dogs Showed 3.8% to 7.04% Yields as of May 26
Seeking Alpha reader requests prompted this series of index-specific articles reporting dividend yield plus price upside results for these indices: Dow 30; S&P 500; S&P Aristocrats; NASDAQ 100; Champions; Contenders; Challengers; CCC Combined; and Global. Bonus reports cover Bad Boy AllStars, and Sector Leaders.
Fifty For the Money
This article was written to reveal bargain stocks to buy and hold up to one full year. See Dow 30 article for explanation of the term "dogs" for stocks reported based on Michael B. O'Higgins book "Beating The Dow" (HarperCollins, 1991), now named Dogs of the Dow. O'Higgins system works to find bargains in any collection of dividend paying stocks. Utilizing analyst price upside estimates expanded the stock universe to include popular growth equities, as desired.
Dog Metrics Determined 50 Champion Stocks by Yield
David Fish's Champions list (from here) as of April 29 contained stocks distinguished as having paid increasing dividends for 25 years or longer. Champion stocks listed below were ranked by yields calculated as of May 26 prices to reveal the top ten. Price data was sourced from Yahoo.com. Annual dividend calculations as of 4/29 came from dripinvesting.org, augmented by May updates from company news releases
As mentioned previously, five of nine Yahoo Finance market sectors [and six of eleven Morningstar sectors] were represented in the top ten champions dog list selected by yield below: financials; technology; services; basic materials; utilities; consumer goods; [or/also real estate; communications services; consumer cyclical; financial services; energy; consumer defensive].
Top dog HCP Inc. (NYSE:HCP)  was tops of the five financial [or three real estate] firms. Other financials placed third, fifth, eighth, and ninth: Universal Health Realty Trust (NYSE:UHT)  [real estate]; Mercury General Corp. (NYSE:MCY) ; Old Republic International ; National Retail Properties (NYSE:NNN)  [real estate].
Second place was secured by a lone technology, [communication service] sector representative, AT&T Inc. (NYSE:T) . Fifth place was held by the steadfast services [consumer cyclical] stock, Bowl America Class A (NYSEMKT:BWL.A) . Sixth and seventh positions were taken by two basic materials [energy] firms, Helmerich & Payne Inc. (NYSE:HP) , and Chevron Corp. (NYSE:CVX) .
The last of the top ten champions in consumer goods [consumer defensive] occupied the tenth place, Universal Corp. (NYSE:UVV) , and completed ten champion dogs by yield for May.
Champion Dividend vs. Price Results Opposed Dow Dogs
Periodic strength of ten top Champions by yield was graphed below as of market closing prices on 5/26/2016 and compared to those of the Dow. Projected annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks and the total single share price history of those ten stocks created the data points shown in green for price and blue for dividend.
Actionable Conclusions: (2) Champions Mixed Up Along As (3) Dow Dogs Mixed Down
Champions dividend (from $10k invested as $1k in each dog) increased as aggregate single share price for the ten also increased after April to create their mixed up status. Champions top ten dog dividend rose 0.19% while price went 6.4% higher. The Champions narrowed the gap to just $5 or 1% short of the overbought parity point.
Dow dogs, however, mixed down in May, as aggregate single share price for those ten fell 7.6% between April 8 and May 26, while annual dividend from $10k invested as $1K in each of the top ten declined 17% according to IndexArb.
As a result, the Dow dogs overbought condition (where aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k each in those ten) shrank after April.
Actionable Conclusion (4): Dow Dogs Stay Overbought
The overhang set a new annual record in June, 2015 at $421 or 106%. The July/August market set the gap at $392 or 106%. September shrank the gap to $279 or 67%. October expanded the chasm again to $323 or 82%. November-December constricted the gap somewhat to $271 or 70%. January narrowed the gap slightly to $223 or 55%. In February when $30 Intel with its dividend dollar replaced Procter & Gamble's $75 price and $2.80 dividend, the gap of Dow price over dividend grew to $265 or 65%. But P&G reclaimed slot ten in March to join big dogs IBM and Boeing to put the gap to $406 or 106% again. April's expansion, fueled by JPM making the top ten Dow, went to $414 or 107%. In May JPM and MRK dropped out of the top ten replaced by INTC and GE to cause the mix down to a gap of $341 or 90%.
This gap between high share price and low dividend per $1k invested shows an overbought condition. Meaning, these are low risk and low opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend was $26.24.
Compared to the DOW, the Champion ten have sporadically retreated in a pattern where aggregate dividend value of $1k investments in each remained above the aggregate single share price. Now it's just $5 away from parity. So, in slight contrast to the Dow, Champion Dog top ten average price per dollar of annual dividend was $21.88 as of May 26.
Should Dow prices somehow move to a level 30-35% lower, they could again become attractive dividend buys! As it stands, the Dow has become an index of growth stocks as their dividends stay discounted by their market price.
Actionable Conclusions: (5) Ten Champion Dog Analysts Anticipated 6.68% Average Upside into April 2017 While (6) 5 Felled Champs Showed 7.68% Average Downside.
The O'Higgins dividend/price metrics system works to find bargains in any collection of dividend paying stocks. Utilizing analyst price upside estimates has expanded the stock universe to include popular growth equities, if desired. This picture of stronger downsides overpowering or equaling upsides is rare and was first spotted in March. This bearish condition is apparently flagging in May.
To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metrics, analyst mean price target estimates provided another tool to dig out bargains.
Actionable Conclusions: Wall St. Wizards Estimated (7) 0.27% Average Upside & (8) 3.22% Average Net Gain from Top 30 Dividend Champions By May 2017
Top thirty dogs from David Fish's Dividend Champions index were graphed below as of May 26, 2016 compared to analyst mean price target estimates for 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 highest yielding 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 highest yielding 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.
Analyst data reported by Yahoo finance projected a 0.19% higher dividend from $30K invested as $1k in each stock in this group while aggregate single share price was projected to increase 0.66% in the coming year.
Notice that the chart showed price exceeded dividend. So, analysts predicted the overbought Champions index returning before 2017. 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 charts. Three to nine analysts have shown the best track record for accurate estimates.
A beta (risk) ranking for each 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 opposite of market direction.
Actionable Conclusion (9): Analysts Projected Ten Dividend Champion Dogs Showing 4.66% to 13.02% Gains By May 2017
Only two of the ten top dividend yielding Champion dogs were among the ten gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy as graded by Wall St. wizards was just 20% accurate.
Ten probable profit generating trades were revealed by Thomson/First Call in Yahoo Finance into 2017:
Coca-Cola Company (NYSE:KO) was projected to net $130.15 based on a median target price estimate from twenty analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.
PepsiCo Inc. (NYSE:PEP) was projected to net $118.47 based on dividends plus a median target price estimate from twenty analysts less broker fees. The Beta number showed this estimate subject to volatility 31% less than the market as a whole.
Target Corp. (NYSE:TGT) was projected to net $100.88 based on dividends plus median target price estimate from twenty-four analysts less broker fees. The Beta number showed this estimate subject to volatility 46% less than the market as a whole.
National Retail Properties was projected to net $93.75 based a median target price estimate from thirteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 67% less than the market as a whole.
AT&T Inc. was projected to net $85.95 based on dividends plus a median target price estimate from twenty-eight analysts less broker fees. The Beta number showed volatility 67% less than the market as a whole.
Nucor Corp. (NYSE:NUE) was projected to net $82.87 based on dividends plus a median target price estimate from fifteen analysts less broker fees. The Beta number showed this estimate subject to volatility 50% more than the market as a whole.
Procter & Gamble Co (NYSE:PG) was projected to net $59.54 based on a median target price estimate from nineteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 35% more than the market as a whole.
Emerson Electric (NYSE:EMR) was projected to net $54.59 based on dividends plus a median target price estimate from twenty analysts less broker fees. The Beta number showed this estimate subject to volatility 16% more than the market as a whole.
Community Trust Banc (NASDAQ:CTBI) was projected to net $48.45 based on dividends plus a median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 37% less than the market as a whole.
Altria Group Inc. (NYSE:MO) was projected to net $46.56 based on dividends plus a median target price estimate from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.
The average net gain in dividend and price was predicted to be 8.2% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 27% less than the market as a whole.
Actionable Conclusion (10): (Bear Alerts) Analysts Estimated Five Champion Dogs To Show Net Losses Averaging 5.46% By 2017
Probable losing trades revealed by Thomson/First Call in Yahoo Finance in 2017 were:
ExxonMobil Corp. (NYSE:XOM) was projected to lose $31.69 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 10% less than the market as a whole.
Mercury General Corp. was projected to lose $33.60 based on dividend and a median target price estimate from two analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 43% less than the market as a whole.
Consolidated Edison (NYSE:ED) was projected to lose $34.44 based on dividend and a median target price estimate from thirteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 91% less than the market as a whole.
WGL Holdings Inc. (NYSE:WGL) was projected to lose $37.70 based on dividend and a median target price estimate from three analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 44% less than the market as a whole.
Northwest Natural Gas (NYSE:NWN) was projected to lose $137.50 based on dividend and a median target price estimate from four analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 56% less than the market as a whole.
The average net loss in price plus broker fees including annual dividends was predicted to be 5.46% on $5k invested as $1k in each of these five dogs. This loss estimate was subject to average volatility 49% less than the market as a whole.
Actionable Conclusion (11): Choose KO vs. NWN Based On Analyst Upside Projections?
Past month price performance of NWN, the Champion portfolio "loser" red-lined by analysts, showed a mighty upside in contrast to the barely positive price history for analyst tagged upside leader, KO.
Again, momentum was not on the side of these analyst forecasts.
Dog Metrics Extracted Bargains
As noted above, ten Champion dividend dogs showing the biggest dividend yields as of May 26 represented five of nine Yahoo business sectors [six of eleven Morningstar sectors]: four financials; one technology; one services; two basic materials; one utility; one consumer goods; [three real estate; one communications services; one consumer cyclical; two financial services; two energy; one consumer defensive]. Listed as of market close, May 26, Champion dividend dogs ranged in yield thus:
Actionable Conclusions: Analysts Allege (12) 5 Lowest Priced of Top Ten Highest Yield Champions Deliver 5.10% VS. (13) 3.02% Net Gains from All Ten As Of May 26, 2017
$5000 invested as $1k in each of the five Lowest priced stocks in the top ten Champion kennel by yield promised 68.83% more net gain than $5,000 invested as $500 in each of all ten. The fifth lowest priced Champion dog, National Retail Properties , was projected to deliver the best net gain of 9.37%.
Lowest priced five Champion dogs as of May 26 were: Bowl America Class A; Old Republic International; HCP Inc.; AT&T Inc.; National Retail Properties, whose prices ranged from $14.26 to $44.66.
Higher priced five Champion dogs as of May 26 were: Mercury General Corp.; Universal Health Realty Trust Universal Corp.; Helmerich & Payne Inc.; Chevron Corp., whose prices ranged from $52.19 to $101.50.
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. It also works well for testing bargain Champion dogs, as you see.
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.
See my instablog for specific instructions about how to best apply the dividend dog data featured in this article.--Fredrik Arnold
The net gain and loss estimates above did not factor-in any foreign or domestic tax problems resulting from distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.
Five of these Champion pups qualify as valuable catches! They are listed with the now 40 Dogs Of The Week (DOTW) found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information.
A top performing DOTW dog for the first quarter has been named. A second quarterly winner was discovered May 13. For a free copy of both quarterly reports and analysis of the winning Arnold Q1 & Q2 picks, plus a surprise bonus bottom dog report, just send your e-mail address, ticker symbol for your favorite dividend stock, and name of your favorite team of any type to: firstname.lastname@example.org. Remember: E-mail, ticker, team!
Stocks listed above were suggested only as possible starting points for your index dog dividend stock purchase or sale research process. These were not recommendations.
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 per indexarb.com; dripinvesting.org/Tools/Tools.asp; YahooFinance.
Analyst mean target prices by Thomson/First Call in Yahoo Finance.
Disclosure: I am/we are long T, VZ, GE, INTC, CSCO, PFE.
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 covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.