This second installment on this end of the month summary compares relative strengths of five stock indexes by yield and dividend vs price gaps using projected annual dividends from $1000 invested in the ten highest yielding stocks in each index. Results for the Dow are also presented as a baseline standard.
This is another chapter in an ongoing effort to respond to the question, "which dividend stocks are good, better, best, bad or ugly?" The effort also heeds Yale professor Robert Shiller'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." Hence this article graphically depicts the gyrations.
The previous summary in January launched Dogs of the Index methodology applied to Chuck Carnevale's Power 25 Index, David Fish's vaunted Champions, Contenders and Challengers, plus a Composite CCC Index. This then, is the next installment of dog strategy summaries for those five fabulous indexes designed By Chuck and David to stimulate buy and hold methodology. These five indices are compared the Dow index as a baseline.
Dogs of the Index Metrics Select Ten in Each
Two key metrics determine the yields that rank index or sector 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 or sector 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 higher (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.
Here are synopses of the five indices:
Carnevale Power 25 Index
Respected analyst and blogger, Chuck Carnevale published 25 Blue Chip Dividend Growth Stocks With Attractive Prospects For Above-Average Total Returns on this Seeking Alpha site in November.
His portfolio review listed top 25 blue chip dividend growth stocks (1) available at current valuations that were significantly below their historical norms (2) remained profitable through the great recession of 2008 and 2009. Mr. Carnevale states his resulting portfolio "offers a three-pronged opportunity for above-average future total returns at below-average risk. We expect that each company will benefit in the future from a potential expansion in their PE ratios coupled with future earnings growth and finally followed by dividend increases offering a return kicker."
His top ten stocks paying the biggest dividends include firms representing six market sectors. The top stock as revealed by Yahoo Finance data, is one of two in the service sector, RR Donnelley & Sons (RRD). The balance of the top ten include three consumer goods, one technology, one basic material, one utility, and two healthcare firms The full list of 25 stocks has five service, five healthcare, three consumer goods, one financial, three basic materials, five industrial, one utility, one technology and no conglomerate representing the market sectors.
David Fish's Champions list of 102 companies paying increasing dividends for 25 consecutive years or more were sorted by yield to reveal the top thirty. Data for all four Fish indices is sourced from Mr. Fish's drip investing tools.
Ten Champion stocks paying the biggest dividends for February include firms representing four market sectors. The top stock Old Republic International (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.
The Contenders list of 145 companies paying increasing dividends for 10 to 24 consecutive years were sorted by yield to reveal the top thirty.
Top ten Contender stocks paying the biggest dividends for February include firms representing four of nine market sectors. The top stock Inergy LP (NRGY) is one of two in the utilities sector. The balance of the top ten include one consumer, two financial and five basic materials firms representing the market sectors.
Fish's Challengers list of 202 companies paying increasing dividends for 5 to 10 consecutive years were sorted by yield to reveal the top thirty.
The top ten Challenger stocks paying the biggest dividends for February include firms representing four of nine market sectors. The top stock Dynex Capital Inc. (DX) is one of three in the financial sector. The balance of the top ten include one consumer, one service, and five basic materials firms representing the market sectors.
CCC Combined Index
The combination of David Fish's 102 Champions, 145 Contenders, and 202 Challengers was sorted by yield to reveal the top ten of each. These were further sorted to reveal the top ten overall as of December 30.
The top ten CCC Combination, also known as ChamConChal group stocks, paying the biggest dividends for February included firms representing five market sectors. The top stock is Inergy LP 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.
Companies in the top ten for each index
The following charts display prices and projected annual dividends for ten stocks comprising each index surveyed 2/24/12. Adjacent to the charts are graphs showing monthly points of comparison between annual projected dividends resulting from $10,000 invested as $1,000 each in the top ten high yield stocks (blue points) versus the total prices of one share of each of the ten stocks (green points). Grouped together the graphs display the comparative gyrations of the five indices.
See the Champions & Contenders & Challengers & Combo & Carnevale & Dow Dogs Shown by Projected Dividend Yields
The following graph shows annual dividends projected from $1000 invested in each of ten stocks with the top yields in the six subject indices (a total of 60 stock investments). The chart plots projected yields as of a specific purchase date near the middle of each month going back to October. Projected yield increases or levellings were most frequent as average stock prices fell within each index. Bull market reversals in two indices forced yields down as recent prices increased. Somehow the Contenders chart dividends from $1000 invested i each stock stay steady as aggregate single share prices of these stocks gyrated month by month.
Annual Dividends Forecast from $1k Invested in each of 10 Top Yielding Stocks in 5 Indices & Dow
Relative yield strengths differentiate the indices on the graph. The CCC Combination Index and Contenders declare the highest yields and the greatest rate of increase during the past month.
Projected dividend yield amounts from these five indexes ad the Dow over the past three months point to six distinct yield levels.
These indices have been ranked for risk as of February 24, 2012 in the following manner: (1) Add the single share prices of the top ten stocks on an index list. Then, (2) add the total annual dividend amounts projected from $1000 invested in each of those ten stocks. Finally, (3) compare the resulting two numbers. Lesser divergence between dividend amounts above single share prices reveals the indexes with lesser risk. Stocks determined to be showing less risk of default than the sovereign U.S. government have shown negative divergence.
By that baseline standard of divergence, these five indexes and the Dow rank themselves by risk as follows:
These five indices and the Dow component stocks have ongoing stories to tell. These graphs and lists will be updated again for publication following a review of each index in late March and thereafter.
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. 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.