S&P 500 Dogs Find Energy To Power July Dog Days

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Includes: CF, CTL, CVX, FTR, GE, GM, HCN, HCP, KSS, LYB, MAT, MUR, OXY, PBCT, SE, SPLS, STX, VLO, WMB, XOM
by: Fredrik Arnold

Summary

Analyst 1yr. price targets rounded up stray energy dogs power out of July. Five filled a quorum of top ten upsiders: OXY, WMB, CVX, MUR, & VLO averaged 13.15% upsides.

Other, non-energy issues, LYB, MAT, GM, FTR, & CF averaged 14.69% upsides. All ten averaged 13.92%. Yields of 50 top S&P 500 stocks ranged from 3.82% to 11.84%.

Top ten S&P dividend dogs and Dow dogs both charged bullishly through June.

S&P ten top upsiders showed net gains averaging 21.9%. Five downside dogs SE, HCN, PBCT, HCN, & SE averaged -6.4% losses per analysts.

Ten top S&P 500 stocks by yield showed 120.35% more gain from $5k invested in the lowest priced five than from $5k invested in all ten per analyst 1yr. targets.

S&P 500 Dogs In July

S&P 500 Index prices were tallied as of market close July 28. Yield (dividend/price) results from Yahoo Finance for 30 top yielding S&P 500 stocks stacked against analyst 1-yr targets led to the actionable conclusions discussed below.

Actionable Conclusion (1) 50 S&P 500 Dogs Showed 3.56% to 11.09% Yields

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; Russell 1000; Russell 2000; Champions; Contenders; Challengers; CCC Combined; and Global. Bonus reports cover Bad Boy AllStars, and Sector Leaders.

The Dividend Dogs Rule

Stocks earned the "dog" moniker by exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as "dogs."

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50 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 Marked S&P 500 Stocks by Yield

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McGraw Hill Finance, publisher of the Dow Jones S&P 500 Index states:

"The S&P 500® is widely regarded as the best single gauge of large cap U.S. equities. There is over USD 5.58 trillion benchmarked to the index, with index assets comprising approximately USD 1.3 trillion of this total. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization."

Six of eleven sectors placed dogs in the top ten by yield for July: energy; communication services; technology; real estate; consumer cyclical; basic materials.

First place went to the tops of two energy dogs, Williams Companies Inc (NYSE:WMB) [1]. The other energy dog placed sixth, Murphy Oil (NYSE:MUR) [6].

Two communication service firms captured slots two, and four, Frontier Communications Corp (NASDAQ:FTR) [2], and CenturyLink Inc, (NYSE:CTL) [4].

Third dog, Seagate Technology (NASDAQ:STX) [3] was the lone technology sector representative. The lone real estate dog placed fifth. HCP Inc. (NYSE:HCP) [5].

Three consumer cyclical firms took the seventh through ninth places. In the old Yahoo nine number sector scheme two would simply be classified as "services," Staples (NASDAQ:SPLS) [7], and Kohl's (NYSE:KSS) [8]. General Moters (NYSE:GM) [9], however, would have been in the "consumer goods" sector.

Finally, tenth place went to the basic materials representative, CF Industries Holdings (NYSE:CF) [10], which completed this S&P 500 May top ten dog list by yield.

S&P 500 Dividend vs. Price Results Matched The Dow Dogs

Relative strengths of the top ten S&P 500 dogs by yield as of market close 7/28/2016 were comparable those of the Dow as shown in the graphs and charts below. Projected annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks, and the total single share prices of those ten stocks, created the data points shown in green for price and blue for dividend.

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Actionable Conclusions: (2) S&P 500 Dogs And (3) Dow Dogs Both Charged Bullishly

The S&P 500 collection turned bullish as dividends continued to fall while single share prices of the ten increased after June. Dividends from $1k invested in each of the top ten S&P 500 stocks fell 8% for the period as their aggregate single share price climbed 3.5% to set the bullish charge.

The Dow charge featured aggregate single share price for those ten increasing over 3.5% between June 30 and July 28, while annual dividends from $10k invested as $1K in each of the top ten decreased about 1.7%, according to IndexArb, to keep the Dow dogs back on the bull path.

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As a result, the Dow dogs' overbought condition (in which aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k each in those ten) shrank slightly. The price gain and dividend decrease for the top ten was largely due to big dog Exxon Mobil (NYSE:XOM) replacing small dog General Electric (NYSE:GE) in the tenth slot of the top ten.

Actionable Conclusion (4): Dow Dogs Continue Overbought; (5) S&P 500 Dogs Push Dividends Above Price Performance

Dow dog overbought August 2015 market gap hit $328 or 84%. A September retreat narrowed the chasm to $261 or 62%. October action, however, put the gap at $299, or 77%. December brought a reduction to $266, or 68%.

January 2016 went slightly wider at $295, or 72%. February widened the gap to $327 or 81%. March showed $399 or 104% set the 2016 record high. In April a price swoon narrowed the Dow overbought chasm to $374 or 100%. A May time small dog migration into the top ten shank the gap to $276 or 71%. Then June pushed the gap to $399 or 109%, a new 2016 record, only to go higher to $433 or 120% in July.

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 $27.62.

Compared to the Dow dogs, the S&P 500 ten, while volatile, are not overbought, and somewhat narrowing their "normal" pattern of dividends above price.

Contradicting the Dow, S&P 500 top ten average price per dollar of annual dividend July 28 came in at $15.89, which was 57.5% of the Dow price for a dollar of annual dividend.

S&P July Dogs Up & Down

S&P 500 Index prices as of market close July 28 showed yield (dividend / price) results from yahoo.com/finance for 30 top yielding S&P 500 stocks, weighed against analyst 1-yr target projections. These led to the actionable conclusions described below.

Actionable Conclusions (5) 10 Top S&P 500 Dogs Showed 7.56% to 23.39% Upsides, While (6) 10 Sagging S&P500 Dogs Fell 1.62% To 18.71% Per Analyst Price Targets For July, 2017

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The number of analysts providing price estimates was noted after the name for each stock on the chart below. Three to nine analysts have proven most accurate in target price estimating.

Actionable Conclusions: Wall St. Wizards Wished (7) A 3.25% Average 1 yr. Upside & (8) A 6.66% Average Net Gain For 30 S&P Dogs By July, 2017

Top 30 dogs on the S&P 500 index stock list graphed below show relative strengths in dividend and price as of July 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 number of shares was then multiplied by projected annual dividend amounts to find the dividend return. Thereafter the analyst mean target price was used to gauge each stock's upside to 2017.

Historic prices and actual dividends paid from $1000 invested in each of the highest yielding stocks and the aggregate single share prices of those thirty stocks divided by 3 created the 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 on the chart below: green for price and blue for dividend.

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Yahoo reported analyst survey numbers predicted a 2% lower dividend from $10K invested as $1k in the average ten of this group, while aggregate single share price of those ten was expected to increase 3.3% in the coming year.

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 was considered optimal for a valid estimate.

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 stocks movement opposed to market direction.

Actionable Conclusion (9): Analysts Allege Top 10 S&P 500 Dogs Could Net 9.68% to 26% By July, 2017

Five of ten top yielding S&P 500 dogs were tagged as top gainers for the coming year by analyst 1 year target prices. So, by that reckoning the dog strategy as graded by wall street wizards was 50% accurate this month.

Ten probable profit generating trades revealed by analysts reported by Thomson/First Call in Yahoo Finance into 2017 were:

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Valero Energy (NYSE:VLO) was projected to net $260.12 based on a median target price estimate from fourteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 12% greater than the market as a whole.

CF Industries Holdings (CF) was projected to net $245.21 based on a median target price estimate from seventeen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.

Frontier Communications was projected to net $241.30 based on a median target price estimate from eleven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.

Murphy Oil was projected to net $199.42 based on a median target price estimate from seventeen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 160% more than the market as a whole.

General Motors was projected to net $190.71 based on estimates from fifteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 60% more than the market as a whole.

Williams Companies was projected to net $174.11 based on a median target price estimate from eleven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 46% more than the market as a whole.

Chevron (NYSE:CVX) was projected to net $119.21 based on a median target price estimate from twenty-two analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 27% more than the market as a whole.

Mattel (NASDAQ:MAT) was projected to net $115.25 based on estimates from nine analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 6% less than the market as a whole.

LyondellBasell Industries (NYSE:LYB) was projected to net $111.36 based on estimates from eighteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility equal to the market as a whole.

Occidental Petroleum (NYSE:OXY) was projected to net $96.76 based on a median target price estimate from twenty-two analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 43% less than the market as a whole.

The average net gain in dividend and price was 21.92% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 16% more than the market as a whole.

Actionable Conclusion (10): (Bear Alert) Analysts Figured Five S&P500 Dogs Would Average 7.73% Losses By 2017

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

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Spectra Energy (NYSE:SE) was projected to lose $33.04 based on dividend and a median target price estimate from fifteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 30% less than the market as a whole.

Welltower (NYSE:HCN) was projected to lose $44.63 based on dividend and a median target price estimate from sixteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 84% less than the market as a whole.

People's United (NASDAQ:PBCT) was projected to lose $51.02 based on dividend and a median target price estimate from nine analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 14% less than the market as a whole.

HCP Inc. was projected to lose $50.53 based on dividend and a median target price estimate from twelve analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 71% less than the market as a whole.

Seagate Technology was projected to lose $129.82 based on dividend and a median target price estimate from twenty-four analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 22% more than the market as a whole.

The average net loss in dividend and price with broker fees included was 7.73% on $5k invested as $1k in each of these five dogs. The beta number showed this estimate subject to volatility 47% less than the market as a whole.

Two Stock Charts Reveal Broker Contrarian Projections

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Recent three month positive historic price performance of Seagate Technology , the S&P500 "loser" red lined by analysts, contrasts to the negative past performance displayed Valero Energy.

Momentum suggests shorting the analyst pick in favor of STX for the coming year.

Analysts Sought Big Gains From Five Lowest Priced S&P500 Top Yielders

Remember, six of eleven Morningstar sectors placed dogs in the top ten by yield for July: energy; communication services; technology; real estate; consumer cyclical; basic materials.

Actionable Conclusions: (11) 5 Lowest Priced of Top Ten Highest Yield S&P 500 Dogs Projected 18.43% VS. (12) 8.36% Net Gains for All Ten by July 2017

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$5000 invested as $1k in each of the five Lowest priced stocks in the top ten S&P 500® dividend kennel by yield were alleged by analyst 1 year targets to deliver 120.35% more net gain than the same amount invested in all ten. The fourth lowest priced CF Industries Holdings , was projected to deliver the best net gain of 24.52%.

Lowest priced five S&P 500® dogs for July 28 were: Frontier Communications Corp; Staples; Williams Companies; CF Industries Holdings; Murphy Oil, with prices ranging from $5.09 to $26.57.

Higher priced five S&P 500® dogs for July 28 were: CenturyLink Inc; General Motors; Seagate Technology; HCP Inc.; Kohl's, whose prices ranged from $30.83 to $41.03.

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.

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 S&P500 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 from mid-June 2015 showed three losses, one poor showing and six gains. That's a 60% upside for ten June 2015 dogs of the S&P500.

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

The stocks listed above were suggested only as reference points for an S&P 500 Dividend investment research process in July, 2016. These were not recommendations.

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.

At least three of these S&P500 dividend pups are listed with the now 50 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 Q1, and Q2 quarterly reports and analysis of the soon to be named winning Arnold Q3 August pick, 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; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Photo: boonesanimals.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.