Champions Vs. Dogs Of The Dow For February

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Includes: CINF, HCP, MCY, MO, ORI, PBI, WRE
by: Fredrik Arnold

David Fish published his article 'Dividend Champions: 14 Increases Expected by April 30 ' on this site last week. He defines "dividend champions" as companies that have paid higher dividends for 25 straight years or more. This article utilizes the dogs of the index strategy to sort these Champions as of February 24 into a suitable grouping of ten to trade.

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 article.

Comparative Methods Used

First, David Fish's Champions list of January 31st showing 102 companies paying increasing dividends for 25 consecutive years or more is 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.

In this article I will assess the relative strengths of the top ten Dividend Champions vs. the Dogs of the Dow February stock list. Annual dividends from $1000 invested in the ten highest yielding stocks in each index versus the aggregate single share prices of the top ten stocks in each index provide a measure of risk.

Dividend Champions

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Ten Champion stocks paying the biggest dividends for February include firms representing four market sectors. The top stock Old Republic International (NYSE:ORI) is one of five in the financial sector. The balance of the top ten include one technology, one service and three consumer goods firms representing the market sectors.

Vertical Moves of Fish's Dividend Champion Stocks

Going back four months, two firms, one financial, Old Republic International and one consumer, Pitney Bowes Inc. (NYSE:PBI) have alternated in the top of this list by yield.

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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Click to enlargeBullish vertical moves were made since January 13 by Old Republic International with a 18.3% price gain; Altria Group Inc. (NYSE:MO) with a 3.6% price gain; Washington REIT (NYSE:WRE) with a 6.6% price gain; Cincinnati Financial (NASDAQ:CINF) dropping out of the top ten showing 14.4% price improvement.

Bearish moves for the same period were experienced by Pitney Bowes showing a 3.14% price decline; Mercury General Corp. (NYSE:MCY) with a 1.4% decline; HCP Inc. (NYSE:HCP) with a 4.94% decline to move into the top ten.

February Dividend vs. Price Match Champions vs. Dow

Below are graphs of the relative strengths of the top ten Dividend Champion index stocks by yield and price from November to February compared to those of the Dow. Using four months of historic projected annual dividend history from $1000 invested in the ten highest yielding stocks each month and the aggregate 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: A Steady Team of Dogs Mushes On

This Champions collection of top ten reliable dividend payers shows steadily stable pricing throughout recent unsettled times. The Dow index on the other hand exhibited a cross over as dividends from $1k invested in the top ten steadied while aggregate total single share prices shot past to the top over the past month. The Champions top ten still pay comparatively higher dividends at a lower per share price than those 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; Dividend Champions; Contenders; Challengers; Dow 30 Index.

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