Dividend-Payers Vs. Dogs Of The Dow For February

by: Fredrik Arnold

David Fish published his Dividend Champions:14; Contenders:11; Challengers:16 Increases Expected... on this Seeking Alpha site in three postings February 21 & 22. He defines his so-called "ChamConChal" group as follows: "Champions are companies that have paid higher dividends for at least 25 straight years; Contenders have streaks of 10-24 years; Challengers have streaks of 5-9 years."

This article combines the top ten yielding stocks from each group then utilizes the dogs of the index strategy to sort the combined index of those 30 into a suitable grouping of ten to trade.

In an ongoing effort to answer the question of which dividend stocks are good, better, best, bad or ugly, this article also illustrates market gyrations. Thus it honors Yale professor Robert Schiller's observation: "People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes."

The Dogs of the Index Strategy

Two key metrics determine the yields that rank index dog stocks: (1) stock price; (2) annual dividend. Dividing the annual dividend by the price of the stock declares the percentage yield by which each dog stock is ranked. Investors select portfolios of five or ten stocks in any one index by yield to trade. They await the results from their investments in the lowest priced, highest yielding stocks they selected and pray that the price of every stock they now own climbs (having locked in a high yield percentage at purchase). This Dogs of the Index strategy, popularized by Michael B. O'Higgins in the book Beating The Dow (HarperCollins, 1991), reveals how low yielding stocks whose prices increase (and whose dividend yields therefore decrease) can be sold off once each year to sweep gains and reinvest the seed money into higher yielding stocks in the same index.

Classic Dogs of the Index theory trades selected Dow stocks. Thus, the Dow is used as a standard of comparison to conclude this piece.

Comparative Methods Used

First, the combination of David Fish's lists as of January 31st of 102 Champions, 145 Contenders, and 202 Challengers were updated with pricing information from Yahoo Finance as of February 24 then sorted by yield to reveal the top thirty stocks. Market performance of these thirty selections is then reviewed using four months of historic projected annual dividend history.

To conclude, this article assesses the relative strengths of the top ten ChamConChal group vs. the Dogs of the Dow February stock list. Annual dividends from $1,000 invested in the ten highest yielding stocks in each index versus the aggregate single share prices of those stocks provide measures of risk.

Top Dividend ChamConChal Group

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ChamConChal group stocks paying the biggest dividends for January include firms representing five market sectors. The top stock is Inergy LP (NRGY) a utility sector equity. The balance of the top ten include one service, three consumer goods, two basic materials, and three financial firms representing the market sectors.

Vertical Moves in ChamConChal Group Stocks

Going back four months, three firms, Triangle Capital (NYSE:TCAP) in financial, Telefonica S.A.(NYSE:TEF) in technology and Inergy LP a utility, claimed the top of this list by yield. As of December 30 TEF was dropped for lack of a dividend increase so now two firms retain the yellow tint.

Color code shows: (Yellow) firms listed in first position at least once between November 2011 and February 2012; (Cyan Blue) firms listed in tenth position at least once between November 2011 and February 2012; (Magenta) firms listed in twentieth position at least once between November 2011 and February 2012; (Green) firms listed in thirtieth position at least once between November 2011 and February 2012. Duplicates are depicted in color for highest ranking attained.

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Bullish vertical moves were made since January 13 by Exterran Partners LP (EXLP) with a 14.66% price gain; Dynex Capital (NYSE:DX) with a 2.5% price gain; PennantPark Investment (NASDAQ:PNNT) with a 3.17% price gain; Triangle Capital showed a 1.97% gain.

Bearish moves for the same period were experienced by Inergy LP showing a 22.6% price decline, yet managing to hold the top spot; StoneMor Partners (NASDAQ:STON) showing a 1.9% price decline; Natural Resource Partners (NYSE:NRP) with a 9.43% decline; National Presto Industries (NYSE:NPK) with a .34% decline;

February Dividend Vs. Price Results for ChamConChal Group Vs. Dogs of the Dow

Below is a graph of the relative strengths of the top ten ChamConChal group stocks by yield as of February 24, 2012 compared to those of the Dow. Using four months of historic projected annual dividend history from $1,000 invested in the ten highest yielding stocks each month and the total single share prices of those ten stocks creates the data points for each month shown in green for price and blue for dividends.

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Conclusion: ChamConChal Dogs Dividends Drop as Prices Run Up

The ChamConChal group of top ten dividend payers shows sinking annual dividends from $1,000 invested in each of the ten stocks as their aggregate single share prices jumped up.

The Dow index on the other hand exhibited crossover as dividends from $1k invested in the top ten decreased while aggregate total single share prices topped their dividends in the past month. The top ten ChamConChal group stocks currently pay far higher dividends from an aggregate single share price notably lower than that of the Dow.

At the end of each month, two summaries conclude this new series of articles showing comparative results of yield and price for six indices: Carnevale Power 25; Fish Dividend Champions; Contenders; Challengers; Dow 30 Index.

Disclaimer: This article is for informational and educational purposes only and shall not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security. Unless otherwise noted, prices and returns on equities in this article are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.

Disclosure: I am long T, VZ, INTC, JNJ, CVX.