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."
The Energized Contender Dogs
David Fish's Dividend Contenders closing prices October 7 were matched with annual dividends projected by dripinvesting.org as of September 30 to sort out five of eleven business sectors represented by top ten Contenders by yield in the Morningstar scheme: consumer cyclical (1); energy (6); utilities (1); consumer defensive (1); real estate (1). These top ten stocks posted yields from 6.93% to 10.69%.
Actionable conclusions by yield, target price upsides and net gains were drawn from 50 Contender dogs surveyed. More than half were from the financial, real estate, and energy sectors.
Actionable Conclusion (1) 10 Top Contender Dog Yields Averaged 8% October 7
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.
Top Contender Fifty
This article was written to reveal bargain dividend 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 has expanded the stock universe to include popular growth equities, as desired.
50 Contender Stocks Sorted by Dog Metric Yield
David Fish's Contenders list (from here) as of October 7 paid increasing dividends for 10 to 24 years. Contender stocks below as rated by yield revealed the top ten. Price data was sourced from Yahoo.com. Annual dividend calculations as of 9/30 came from dripinvesting.org.
As mentioned above, five of eleven Morningstar sectors were represented: consumer cyclical; energy; utilities; consumer defensive; real estate.
Leading the Contenders was StoneMor Partners LP (NASDAQ:STON)  from the consumer cyclical business sector.
Energy captured the second, fourth, sixth, and eight through tenth slots: DCP Midstream Partners LP (NYSE:DPM) ; ONEOK Partners LP (NYSE:OKS) ; Genesis Energy LP (NYSE:GEL) ; Sunoco Logistics Partners LP (NYSE:SXL) ; Energy Transfer Equity LP (NYSE:ETE) ; Buckeye Partners LP (NYSE:BPL) .
Finally, the remaining non-energy sector firms (utilities, consumer defensive, and real estate) placed third, fifth, and seventh: AmeriGas Partners LP (NYSE:APU)  the utility, Vector Group Ltd.  of consumer defensive, and Omega Healthcare Investors (NYSE:OHI)  from real estate, completed the top ten contender dogs for October by yield.
Contenders Mixed Down in Dividend vs. Price Results As Dow Dogs Retreated
Periodic strength of ten top Contenders by yield, graphed below as of 10/7/16 was compared to the strength 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) Contenders Mixed Up, As (3) Dow Dogs Retreated Bearishly
Dividend from $10k invested as $1k in each top Contender dog fell 2% as aggregate single share price tumbled 10% after September. The Contenders thus backed away from any overbought crossover between September 2 and October 7. Dividend hovered 1.11 times to 1.31 times above the aggregate stock price.
Dow dogs, however, retreated into October, as aggregate single share price for those ten fell as dividends rose. From September 2 to October 7, price dropped 0.5%, while annual dividend (from $10k invested as $1K in each of the top ten) rose 10% 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 some.
Actionable Conclusion (4): Dow Dogs Found A Way To Be Less Overbought
January 8, 2016 had the overbought gap down to $224 or 56%. The gap grew in February to $246 or 59%. A March charge put the gap up to $293 or 73%. April set a 2016 record expanding to $400 or 104%, May's price retreat brought the gap down to $350 or 91% and June put the gap at $342 or 90%. The July surge-resulting gap was $414 or 114%. August pushed it to $418 but still 114%. Then September grew the gap to another record for the year, $471 or 128%. October overbought the chasm down to $378 or 101%.
The Dow Dogs remain overbought and overpriced. Meaning, these are low risk and low opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend was $26.70.
Compared to the DOW, the Contender ten since February 2016, have brought the two data points, dividend over price, closer together. Recently, in greater contrast to the Dow, Contender Dog top ten average price per dollar of annual dividend was $12.66 as of October 7.
If Dow prices decline about 35%-40% they could again become attractive dividend buys! As it stands, the Dow has become an index of growth stocks as their dividends have been progressively devalued by market demand for safe stocks. When Dow prices plunge, their dividends will be attractive again.
Actionable Conclusions: (5) Ten Contender Dogs Showed 18.43% Average Upside, While (6) Two Dropped To Down 0.11% & 6.81% Estimated To October 2017
To quantify top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metrics, analyst mean price target estimates were another tool used to dig out bargains.
Actionable Conclusions: Wall St. Analysts Forecast (7) 9.27% Upside & (8) 11.33% Net Gain Averages from Top 30 Dividend Contenders By October, 2017
Top thirty dogs from David Fish's Dividend Contenders list were graphed below as of October 7, 2016 and 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 predicted annual dividend amounts to find the return.
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 in green for price and blue for dividend.
Analyst data reported by Yahoo finance projected a 8.4% lower dividend from $30K invested as $1k in each stock in this group while aggregate single share price was projected to increase 8.5% 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 had a better history of 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 opposite of market direction.
Actionable Conclusion (9): Analysts Predict Dividend Contender Dogs To Net 15.6% to 36.28% By October, 2017
Four of ten top dividend yielding Contender 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 40% accurate.
Ten probable profit generating trades were revealed by Thomson/First Call in Yahoo Finance into 2017:
StoneMor Partners LP was projected to net $362.75 based on dividends plus median target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 66% less than the market as a whole.
Spectra Energy Partners (NYSE:SEP) was projected to net $306.93 based on dividends plus the annual price estimate from fifteen analysts less broker fees. The Beta number showed this estimate subject to volatility 9% less than the market as a whole.
Energy Transfer Equity LP was projected to net $305.39 based on dividends plus the median rates of sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 93% more than the market as a whole.
Genesis Energy LP was projected to net $237.57 based on dividends plus the median target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 32% more than the market as a whole.
Enterprise Products Partners (NYSE:EPD) was projected to net $230.00 based on a median target price estimate from twenty-seven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 17% less than the market as a whole.
Sunoco Logistics Partners LP was projected to net $215.23 based on a median target price estimate from eighteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 10% greater than the market as a whole.
Omega Healthcare Investors was projected to net $182.53 based on dividends plus median target price estimate from eight analysts less broker fees. The Beta showed this estimate subject to volatility 70% less than the market as a whole.
PPL Corp. (NYSE:PPL) was projected to net $174.42 based on dividends plus the lowest of annual price estimates from fifteen analysts less broker fees. The Beta number showed this estimate subject to volatility 51% more than the market as a whole.
W.P. Carey Inc. (NYSE:WPC) was projected to net $157.69 based on a median target price estimate from six analysts combined with dividends less broker fees. The Beta number showed this estimate subject to volatility 18% less than the market as a whole.
Transmontaigne Partners LP (NYSE:TLP) was projected to net $155.80 based on dividends plus the median of annual price estimates from six analysts less broker fees. The Beta number showed this estimate subject to volatility 92% less than the market as a whole.
The average net gain in dividend and price was 23.28% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 19% less than the market as a whole.
Actionable Conclusion (10): (Bear Alert) Analysts Showed One Champion Dog With Loss Of 3.83% By 2017
Probable losing trades revealed by Thomson/First Call in Yahoo Finance in 2017 were:
ONEOK Inc. (NYSE:OKE) was projected to lose $38.23 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 2% more than the market as a whole.
Actionable Conclusion (11): "If Everyone Told The Truth, The Market Would Not Move:" STON vs. OKE Price History
Year to date price performance of ONEOK Inc. the Contender portfolio "loser" red-lined by analysts, showed strong 102% upside in contrast to the below zero -7.86% negative price history demonstrated by analyst tagged upside leader, StoneMor Partners L.P. .
Momentum remains contrary to these two analyst projections.
Dog Metrics Found Big Small Dog Bargains
Yield (dividend / price) results from Yahoo.com and dripinvesting.org for Contender dividend stocks as of market closing prices October 7 did the ranking.
As mentioned above, five of eleven Morningstar sectors were represented: consumer cyclical; energy; utilities; consumer defensive; real estate.
Actionable Conclusions: (11) 5 Lowest Priced of Top Ten Highest Yield Contender Dogs Showed Analysts 22.49% VS. (12) 17.14% Net Gains by All Ten Come October, 2017
$5000 invested as $1k in each of the five Lowest priced stocks in the top ten contenders dividend kennel by yield were alleged by analyst 1 year targets to deliver 31.22% more net gain than the same amount invested in all ten. The third lowest priced StoneMor Partners LP , was projected to deliver the best net gain of 36.27%.
Lowest priced five contenders dogs for October 7 were: Energy Transfer Equity LP; Vector Group Ltd.; StoneMor Partners LP; Sunoco Logistics Partners LP; Omega Healthcare Investors, with prices ranging from $15.95 to $33.18.
Higher priced five contender dogs for October 7 were: DCP Midstream Partners LP; Genesis Energy LP; ONEOK Partners LP; AmeriGas Partners LP; Buckeye Partners LP, whose prices ranged from $35.27 to $69.98.
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 Contender stocks per YahooFinance data covering this Seeking Alpha article from late-October in 2015. These graded 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.
The "basic method" top ten annual analyst accuracy score for The Top Ten Contenders by yield between late-October 2015 vs. 2016 was four losses, and six gains. Four small dogs were gainers, as were two big Contender dogs gainers. O'Higgins basic method completed this test at just a 60% success rate.
Stocks listed above were suggested only as reference points for your own Contender dog stock investigation in early October, 2016. These were not recommendations.
See my instablog for specific instructions about how to best use 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 Contender pups qualify as valuable catches! They are listed with the now 52 Dogs Of The Week (DOTW) found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information.
Top performing DOTW dogs for the first through third quarters have been named. A fourth quarterly winner will be announced November 16.
Root for the Underdog at the free for all first annual dividend dog of the year award webinar on shindig. November 16 at 11AM to Noon EST. Go here to reserve your seat: http://events.shindig.com/event/dogofyearaward.
For a free copy of both previous quarterly reports Q1, & Q2 and analysis of the new winning Arnold the Q3 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: firstname.lastname@example.org. Remember: E-mail, ticker, team!
The net gain 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.
Stocks listed above were suggested only as possible starting points for your index dog dividend stock purchase/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 derived from indexarb.com; YCharts.com; analyst mean target prices by Thomson/First Call in Yahoo Finance. Dog photo: spaderranch.com.
Disclosure: I am/we are long GE, INTC, CSCO, 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.