Coach Is Top Gaining Strategic Dividend Index Dog For Fall

|
Includes: AEO, AES, BG, COH, COLB, DOW, EMN, GM, KSS, LYB, MPC, SCS, SFL, T, TSO, UFS, WNR
by: Fredrik Arnold

Summary

Miller/Howard Investments (M/H) of Woodstock, New York started their Strategic Dividend Index (SDI) in July, 2014. Results shown are from their latest September 30, 2016 quarterly update.

M/H Strategic Dividend Index (SDI) selection criteria are: (1) Dividend yield; (2) Asset valuation; (3) Profitability; (4) Estimated growth of yield; (5) Momentum.

30 SDI Fall stocks ranged in yield from 2.43% to 12.41% as of September 30. SCS, COH, AES, LYB, KSS, UFS, GM, T, WNR, & SFL showed top yields.

Thirty SDI upsides averaged 9.4% with gains 9.2% per 1yr. targets. EMN, GM, DOW, T, BG, MPC, SFL TSO, AEO, & COH led gainers. One 2.74% downside was predicted.

$5k invested in the lowest-priced five M/H-SDI Dogs showed 1.86% LESS net gain than from $5k invested in all ten top-yield stocks. Use this to guide your Fall SDI research.

Yield (dividend / price) results from here verified by Yahoo Finance for ten stocks from four of nine Yahoo Finance sectors as of market closing prices June 29 revealed the actionable conclusions discussed below. Miller/Howard Investments, publisher of the index states:

"The Miller/Howard Strategic Dividend Index (MHDT) seeks to capture and distill all we have learned over nearly a quarter century of active management of dividend companies. Our strategic, rules-based index is created to enhance current passive approaches to asset allocation, going beyond market exposure by applying persistent, strategic factors we have observed and confirmed through our active management. We seek to find and retain the "good," as opposed to cap-weighted indexes, which in our view hold the good, the bad, and the ugly-by their very nature and definition."

Click to enlarge

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."

Current Strategic Dividend Index

Click to enlarge

"The Miller/Howard Strategic Dividend Index is a composite of 30 publicly traded equities that provide above-average dividend yields and dividend growth, and are equal weighted based on certain quantitative fundamental factors."

Actionable Conclusion (1) Dog Metrics Singled Out 10 Top Strategic Dividend Index Stocks By Yield

Top ten Miller/Howard Strategic Dividend Index dogs showing the biggest dividend yields as of October 11, 2016, represented six sectors in the Morningstar eleven sector scheme: (1) industrials [2 listed]; (2) energy [1 listed]; (3) communication services [1 listed]; (4) consumer cyclical [3 listed]; (5) basic materials [2 listed];(6) utilities [1 listed].

Top M/H SDI stock by yield, Ship Finance International Ltd (NYSE:SFL) [1] was the best of two industrial firms listed. The other one placed tenth: Steelcase (NYSE:SCS) [10].

A lone energy firm placed second, Western Refining (NYSE:WNR) [2], while a single communication service stalwart placed third, AT&T Inc. (NYSE:T) [3].

Consumer cyclical firms placed fourth, sixth, and ninth, by yield: General Motors Co. (NYSE:GM) [4]; Kohl's (NYSE:KSS) [6]; Coach (NYSE:COH) [9].

Two basic materials firmly anchored the middle of the pack of ten by yield, Domtar Corporation (NYSE:UFS) [5], and LyondellBasell Industries (NYSE:LYB) [7].

Finally, one utility placed eighth, The AES Corporation (NYSE:AES) [8], to complete the top ten Fall quarterly M/H SDI dogs by yield.

Ten M/H SDI Top Dividend Vs. Price Results Compared To Dow Dogs

Graphs below compared relative strengths of the top ten M/H SDI dogs by yield as of market close 10/11/2016 with those of the Dow industrials index. Annual dividend history from $10,000 invested as $1k in each of the ten highest-yielding stocks along with the total single share price of those ten stocks made the data points shown in green for price and blue for dividends.

Click to enlarge

Actionable Conclusion (2): M/H SDI Dogs Mixed Down Into Fall

M/H SDI top ten index dropped in both dividend and price for Autumn to change-up their previous bullish summer quarterly rebalance. Dividend from $10k invested as $1k in each of the top ten stocks dropped while aggregate single share price of the top ten tumbled as of October 11. Dividend derived from $10K invested as $1k in each top dog fell at a rate of 7.3% to start the summer quarter while aggregate single share price of those ten stocks tumbled 16% for the period.

In December 2015 the vectors for price and dividend came within $10 of each other. The March rebalance brought the M/H SDI to an "optimal" state of dividend greater than price and June continued that configuration, September's rebalance of dividends from $10k invested again exceeded the aggregate single share price of the ten stocks acquired.

Click to enlarge

Meanwhile, Dow dogs charged bullishly after summer. They fell 2% in estimated annual dividend from $10k invested as $1k in each of the top ten since June, while aggregate single share price inclined 2.75% into the fall quarter.

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) widened its gap for Fall.

Actionable Conclusion (3): Dow Dogs Remain Overbought

Historically, December, 2015 posted a gap of $292 or 75%. March 2016 brought the Dow overprice metric to $399 or 104% record. June saw the gap retreat to $343 or 89%. September measured the gap at $372 or 99%.

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. The Dow top ten average price per dollar of annual dividend for Fall 2016 was $26.56.

Conversely, the Miller/Howard Strategic Dividend Index chart shows their list to be composed of lower risk and higher opportunity M/H SDI pups.

In contrast to the Dow, M/H SDI Dog top ten average price per dollar of annual dividend showed a lower $21.02 as of October 11. That's about 21% lower priced than an annual dollar of Dow dividend.

Actionable Conclusions: (4) Ten M/H SDI Dogs Showed 12.89% To 24.14% Upsides, While (5) One Showed A 2.74% Downside To September, 2017

Click to enlarge

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 Wanted (6) A 9.37% Average Median Target Price Upside For 30 Miller/Howard SDI Upside Dogs Come September 2017

Miller/Howard SDI stocks were graphed below to show relative strengths by dividend and price as of October 11, 2016, and those projected by analyst mean price target estimates to the same date in 2017.

Click to enlarge

A hypothetical $1,000 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 gauged the stock price upsides and net gains including dividends, less broker fees, as of 2016.

Historic prices and actual dividends paid from $10,000 invested as $1k in each of the stocks and the aggregate single share prices of those ten stocks created data points for 2016. Projections based on estimated dividend amounts from $1,000 invested in the ten stocks and aggregate 1-year analyst target share prices from Yahoo Finance created the 2017 data points green for price and blue for dividend.

Yahoo analysts' median 1-year targets projected a 8% lower dividend from $10k invested as $1k in ten dogs in this group while aggregate single share price for those ten was projected to increase by 10% in the coming year. Notice, price exceeding dividend in the coming year forecasts a return to an overbought condition for the Miller/Howard SDI top yield dogs.

The number of analysts contributing to the 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 projection estimate. Estimates provided by one analyst were not applied (n/a).

A beta (risk) ranking for each stock was provided in the far right column of 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's movement opposite of market direction.

Actionable Conclusion (7): Analysts Asserted 15.65% To 25.86% Net Gains For Ten Miller/Howard SDI Dogs By September 2017

Four of ten top dividend-yielding Miller/Howard SDI dogs were verified as being among the top ten of thirty gainers for the coming year based on analyst 1-year target prices. So this quarter the dog strategy for the Miller/Howard SDI as graded by Wall St. wizards was 40% accurate.

Ten probable profit-generating trades were revealed in Yahoo Finance for June 2017:

Click to enlarge

Coach was projected to net $258.62, based on dividends, plus mean target price estimates from thirty-three analysts, less broker fees. The Beta number showed this estimate subject to volatility 42% less than the market as a whole.

American Eagle Outfitters (NYSE:AEO) was projected to net $246.89, based on dividends, plus the median of annual price estimates from twenty-three analysts, less broker fees. The Beta number showed this estimate subject to volatility equal to the market as a whole.

Tesoro (NYSE:TSO) was projected to net $225.23, based on dividends, plus median target price estimates from sixteen analysts, less broker fees. The Beta number showed this estimate subject to volatility 52% more than the market as a whole.

Ship Finance Intl was projected to net $206.74, based on a median target price estimate from seven analysts, combined with projected annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 31% more than the market as a whole.

Marathon Petroleum (NYSE:MPC) was projected to net $205.93, based on dividends, plus mean target price estimates from seventeen analysts, less broker fees. The Beta number showed this estimate subject to volatility 68% greater than the market as a whole.

Bunge (NYSE:BG) was projected to net $202.50, based on dividends, plus mean target price estimates from ten analysts, less broker fees. The Beta number showed this estimate subject to volatility 1% less than the market as a whole.

AT&T Inc. was projected to net $180.00, based on dividends, plus a mean target price estimate from twenty-three analysts, less broker fees. The Beta number showed this estimate subject to volatility 66% less than the market as a whole.

Dow Chemical (NYSE:DOW) was projected to net $163.48 based on dividends, plus mean target price estimates by eighteen analysts, less broker fees. The Beta number showed this estimate subject to volatility 40% more than the market as a whole.

General Motors Co. was projected to net $156.54, based on dividends, plus a mean target price estimate from eighteen analysts, less broker fees. The Beta number showed this estimate subject to volatility 65% more than the market as a whole.

Eastman Chemical (NYSE:EMN) was projected to net $156.54, based on a mean target price estimate from sixteen analysts, combined with projected annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 36% more than the market as a whole.

Average net gain in dividend and price was estimated at 20.03% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 18% more than the market as a whole.

Actionable Conclusion (8): Choose Between COLB vs. COH Based On Analyst One Year Upside Projections

Click to enlarge

Year to date price performance of Columbia Banking System (NASDAQ:COLB) a MH/SDI "loser" red-lined by analysts, showed a horizontal vector in contrast to the mostly upside price history for analyst tagged upside leader, Coach.

Momentum, a factor in selection, does appear to favor these analyst forecasts. Only in the last three months of this period was the bank found to have a sustained a price upside rally while Coach declined in price.

No Edge For 5 Highest Yield, Lowest Priced Strategic Index Stocks In The Fall Quarter As Dog Metrics Attempted To Extract Small Dog Bargains

Ten Miller/Howard Strategic Dividend Index equities were culled by yield from the Fall quarterly update from here. Yield (dividend / price) results verified by Yahoo Finance did the ranking.

As noted above, top ten Miller/Howard Strategic Dividend Index dogs showing the highest dividend yields as of October 11, 2016 represented six sectors in the Morningstar eleven sector scheme: (1) industrials [2 listed]; (2) energy [1 listed]; (3) communication services [1 listed]; (4) consumer cyclical [3 listed]; (5) basic materials [2 listed];(6) utilities [1 listed].

Actionable Conclusions: (9) Analysts Imagine 5 Lowest-Priced of the Top Ten Highest-Yield Strategic Dividend Index Dogs Delivering 11.45% Vs. (10) 11.67% Net Gains by All Ten by October 11, 2017

Click to enlarge

$5000 invested as $1k in each of the five lowest-priced stocks in the top ten M/H SDI kennel by yield were predicted by analyst 1-year targets to deliver 1.86% LESS net gain than $5,000 invested as $.5k in each of all ten. The sixth-lowest priced M/H SDI dividend dog, Coach , was projected to deliver the best net gain of 25.86%.

The five lowest-priced M/H SDI dividend dogs for October 11 were: The AES Corporation; Steelcase; Ship Finance International Ltd; Western Refining; General Motors Co.; with prices ranging from $11.52 to $31.89.

Five higher-priced M/H SDI dividend dogs for October 11 were: Coach; Domtar Corporation; AT&T Inc.; Kohl's; LyondellBasell Industries, whose prices ranged from $36.25 to $80.30.

That distinction between the five low-priced dividend dogs and the general field of ten reflected Michael B. O'Higgins' "basic method" for beating the Dow. The scale of projected gains based on analyst targets added 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. Caution is advised, since analysts are historically only 20% to 80% accurate on the direction of change and just 0% to 20% accurate on the degree of change.

See my instablog for specific instructions about how to best use the dividend dog data featured in this article.

Two of these Miller/Howard SDI 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. And monthly winners are known. 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 the monthly top dog list including updates on the Q1, Q2 and the Q3 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!

The net gain/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.

Stocks listed above were suggested only as possible reference points for your M/H SDI 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 derived from www.indexarb.com; www.dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo: petbucket.com

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