Apple Tops Dogs Of The Dow July Analysis

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Includes: AAPL, BA, CAT, CSCO, CVX, DIS, GE, GS, IBM, JPM, KO, MCD, MRK, NKE, PFE, PG, UNH, V, VZ, WMT, XOM
by: Fredrik Arnold

Summary

Top ten Dow dog yields averaged 3.59% per indexArb.com or 3.49% per YCharts.com July 26. Top 11 were: KO (or PG); MRK; BA; XOM; PFE; CSCO; IBM; CAT; VZ; CVX.

Both IndexArb and YCharts projected a bullish advances. Analyst 1yr. targets projected 13.98% average upsides from the top ten while two posted 4.7% & 10.75% downsides.

Top ten net gainers ranged from 10.2% to 24.5% from JPM, CVX, KO, BA, NKE, V, UNH, DIS, GS, & AAPL. Losses of 5.7% & 11.3% dogged WMT & CAT.

Dow dogs posted 25.9% more gain per IndexArb, or 48.7% LESS per YCharts from $5k invested in lowest priced five than $5k in all ten. (PG replaced KO on YCharts.).

Dividend Dogs Rule

The "dog" moniker was earned in three steps: (1) any stock paying a reliable, repeating dividend (2) whose price fell to a point where its yield (dividend/price) (3) grew higher than its peers (such as this Industrials collection), is so tagged. Thus, the highest yielding stocks in any collection became known as "dogs."

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The Dow 30 Done Two Ways

Yield (dividend / price) results from indexArb.com and YCharts.com for 30 Dow industrial stocks as of market closing prices July 26 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."

Two Systems Rate Dow Dogs by Yield

Top ten Dow dogs by yield from IndexArb.com after June included six of eleven business sectors: communication services (1); energy (2); industrial (2); technology (2); healthcare (2); consumer defensive (1). Basic materials, financial services, consumer cyclical, & real estate, did not make the IndexArb.com 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 May-20-2016. 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."

Top ten Dow dogs by yield from YCharts.com after June replaced one consumer defensive stock on the Index.Arb list with another. So like IndexArb, YCharts tallied the same six of eleven: communication services (1); energy (2); industrial (2); technology (2); healthcare (2); consumer defensive (1).

Also note that YCharts subscribes to Morningstar's eleven sector naming convention as tracked here: Basic Materials, Communication Services, Consumer Cyclical, Consumer Defensive, Energy, Financial Services, Healthcare, Industrials, Real Estate, Technology, and Utilities.

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

IndexArb.com and YCharts.com after June, put just two the top ten firms in the same order. An industrial dog in third place, Caterpillar (NYSE:CAT) [3], and a healthcare dog in seventh, Pfizer (NYSE:PFE) [7].

Verizon (NYSE:VZ) [1], the communication services firm, showed the best dividend yield as of market close for IndexArb, but for YCharts Chevron (NYSE:CVX) from the energy sector was top dog. IndexArb, used the second slot for Chevron [2]. While YCharts used second for Verizon.

The two lists swapped places for two technology dogs in fourth and fifth places. Cisco Systems (NASDAQ:CSCO) [4] and International Bus. Machines (NYSE:IBM) [5] was the order on Index.arb list and YCharts was the opposite.

IndexArb ceded sixth place to the industrial goods aircraft behemoth, Boeing Company (NYSE:BA) [6] while for YCharts, Exxon Mobil was there. Eighth place was occupied by Exxon Mobil (NYSE:XOM) [8] for IndexArb, while YCharts had Boeing there.

The ninth position for IndexArb belonged to Coca-Cola Co. (NYSE:KO) [9], however Merck & Co, was there in YCharts. Finally, the tenth slot belonged to Merck & Co (NYSE:MRK) [10] for IndexArb, while YCharts had Procter & Gamble (NYSE:PG) tenth.

The big differentiator for the two lists was Coca-Cola Co. being included on the IndexArb list, while Procter & Gamble showed up on YCharts. That juxtaposition created big consequences in the five small dog analyst projections described at the end of this article.

Dow Top 10 Dividend vs. Price Results

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 [1] Charged Bullishly Per Both IndexArb, and [2] YCharts In July

IndexArb projected annual Dow dogs dividend from a $10k investment falling 5.6% after June. At the same time their single share price soared 7.9% to set the charge.

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YCharts also projected charging Dow dogs. They showed a 5.5% decline in annual dividend from $10k invested as $1K in each of the top ten, while the aggregate single share price for those ten took off heavenward 20.5% between June 24 and July 26.

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The differences between the IndexArb and the Y 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 (NYSE:GE) 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 (NYSE:WMT) at $60 /$2 and McDonald's (NYSE:MCD) $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 higher 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%.

April put the gap at $369 or 98% per Dow IndexArb,, while it was $403 or 110% per YCharts. Thus, the gap between these gaps continued to widen with the YCharts now in the lead. May narrowed both leaving YCharts leading with a 21.7% wider gap. In June IndexArb price soared (powered by Boeing) to put that list up to $362 or 95% while YCharts went to $328 or 89% to put IndexArb back on top.

July saw Coca-Cola Co. on the IndexArb list and the overbought gap at $442 or 123%. With Procter and Gamble moving onto the YCharts top ten, price soared and dividend dropped to put the YChart ten in the lead in the overbought gap derby at $481 or 141%.

The result is a lower average cost per dollar of annual dividend on IndexArb of $27.83 while the Yahoo/YChart list average cost per dollar of annual dividend was $28.63.

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.

Actionable Conclusions: (4): Wall St. Wizards Predicted A 5.83% Average Upside & (5) A 6.05% Average Net Gain from All 30 Dow Dogs Through July 2017

All thirty dogs from the Dow 30 Industrials were graphed below to show relative strengths by dividend and price as of July 26, 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 a 3.5% lower dividend from $10K invested as $1k in each dog of this group while aggregate single share price was projected to increase 5.13% in the coming year. Since 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% downside market correction. "Brexit" had no effect and higher interest rates, if they are ever imposed, will likely widen the gap.)

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 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 Advocate 10 Dow Upsides Of 9.15% to 24.13%; (7) 6 Dow Downsides of -1.31% to -12.99%

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Actionable Conclusion (8): Ten Dow Dividend Dogs Chase 10.23% to 24.55% Net Gains As Of July 2017

Just three 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 30% accurate.

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

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Apple Inc. (NASDAQ:AAPL) was projected to net $245.54 based on a median target price estimate from thirty-nine analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 43% more than the market as a whole.

Goldman Sachs (NYSE:GS) was projected to net 154.48 based on dividends plus a median target price estimate from twenty-six analysts less broker fees. The Beta number showed this estimate subject to volatility 57% less than the market as a whole.

Walt Disney (NYSE:DIS) was projected to net $154.48 based on dividends plus a median target price estimate derived from twenty-six analysts less broker fees. The Beta number showed this estimate subject to volatility 46% more than the market as a whole.

UnitedHealth Group (NYSE:UNH) was projected to net $148.77, based on a median target price estimate from thirty-three analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 36% less than the market as a whole.

Visa (NYSE:V) was projected to net $147.68 based on dividends plus the median of annual price estimates from twenty-nine analysts less broker fees. The Beta number showed this estimate subject to volatility 5% more than the market as a whole.

NIKE (NYSE:NKE) was projected to net $145.78 based on estimates from twenty-six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 47% less than the market as a whole.

Boeing Company was projected to net $130.61 based on a median target price estimate from sixteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 28% more than the market as a whole.

Coca-Cola was projected to net $126.17 based on dividends plus a median target price estimate from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 17% less than the market as a whole.

Chevron was projected to net $112.45 based on target estimates from twenty-five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 27% more than the market as a whole.

JPMorgan Chase (NYSE:JPM) was projected to net $102.25, based on dividends plus a median target price estimate by twenty-seven analysts plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 18% more than the market as a whole.

The average net gain in dividend and price less fees was nearly 14.7% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 2% more than the market as a whole.

Actionable Conclusion (9): (Bear Alert) Analysts Projected Two Dow Dog To Show Losses Of 5.67% & 11.27% By 2017

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

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Wal-Mart Stores was projected to lose $56.76 based on dividend and a median target price estimate from twenty-three analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 79% less than the market as a whole.

Caterpillar was projected to lose $112.69 based on dividend and a median target price estimate from seventeen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 21% more than the market as a whole.

The average net loss less dividend and including fees was nearly 8.5% on $2k invested as $1k in each of these two dogs. This gain estimate was subject to average volatility 29% less than the market as a whole.

A Dow Dog Year To Date Price History For Contrarians

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This side by side price performance compares the Broker deemed real estate "loser" Caterpillar red line actual upward price history contrasts greatly to the marked downside for this month's Broker selected top Dow dog, Apple, Inc. in blue. Again, price momentum is not in line with broker expectations.

5 Small Dogs Of The Dow Showed 25.9% More July Gains per IndexArb, Or 48.7% LESS per YCharts, from $5K Invested, than From $5K In All Ten Dogs.

A 145% Higher Predicted Small Dog Return for IndexArb Came From CAT Placing In The 5 Big Dogs. In YChart's List CAT was Pushed Onto The Small Dogs By PG

Top ten Dow dogs by yield from IndexArb.com after May included six of eleven business sectors: communication services (1); energy (2); industrial (2); technology (2); healthcare (2); consumer defensive (1).

Actionable Conclusions: Five Lowest Price High Yield IndexArb Dow Dogs (10) Delivered 5.3% VS. (11) 4.21% Net Gains by All Ten by July 26, 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 25.9% more net gain than the same amount invested in all ten. The ninth lowest priced top ten dog of the Dow, Boeing, was projected to deliver the best net gain of 13.06%.

Lowest priced five dogs of the Dow stocks for July 26 were: Cisco Systems; Pfizer Inc.; Coca-Cola Co.; Verizon Communications; Merck & Co., with prices ranging from $30.88 to $58.36.

Higher priced five Dow dividend dogs per IndexArb for June 24 were: Caterpillar Inc.; Exxon Mobil; Chevron Corp.; Boeing Company; International Business Machines, whose prices ranged from $82.75 to $162.12.

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 July Loss per YCharts

Top ten Dow dogs by yield from YCharts.com after June also tallied the same six of eleven sectors in the top ten:communication services (1); energy (2); industrial (2); technology (2); healthcare (2); consumer defensive (1).

Actionable Conclusions : Five Lowest Price High Yield YChart Dow Dogs (12) Delivered 2.16% VS. (13) 4.22% Net Gains by All Ten by July 26, 2017 per YCharts

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$5000 invested as $1k in each of the five Lowest priced stocks in the top ten dogs of the Dow YChart kennel by yield were predicted by analyst 1 year targets to deliver 48.7% LESS net gain than the same amount invested in all ten. The ninth lowest priced top ten dog of the Dow, Boeing Corporation , was projected to deliver the best net gain of 12.84%

Lowest priced five dogs of the Dow stocks for July 26 per Y Charts were: Cisco Systems; Pfizer Inc.; Verizon Communications; Merck & Co.; Caterpillar Inc., with prices ranging from $30.88 to $82.75.

Higher priced five Dow dividend dogs per Y Charts for July 26 were: Procter & Gamble; Exxon Mobil Corp.; Chevron Corp.; Boeing Company; International Business Machines, whose prices ranged from $85.27 to $162.12.

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.

Annual Analyst Accuracy

You see below the one year result of ten analyst target estimates for Dow stocks per Yahoo from this article in 2015. These were applied to the "basic method" Michael B. O'Higgins employed for beating the Dow. The key shows: losses in a reddish tint; poor results tinted yellow; gains tinted green; no tint means no difference.

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The "basic method" top ten annual analyst accuracy score for early August 2015 showed ten gains. That's 100% upside for all ten August 2015 dogs of the Dow. Note that IndexArb overestimated 2016 projected dividends for three of the August Dow dogs.

The stocks listed above were suggested only as reference points for a Dow Industrial equities dog dividend stock investment research process in Late-July, 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.

Five of these Dow dividend pups qualify as valuable catches! They are two out of the now 44 Dogs of the Week found on The Dividend Dog Catcher premium site. Click here for more information and to subscribe.

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 & Q3 August picks, send your e-mail address, ticker symbol for your favorite dividend stock, and name of your favorite team of any sport or activity to: fredrika120@gmail.com. Remember: E-mail, ticker, team!

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 dividend.com; ycharts.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Photo: services.flikie.com.

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