This end of month installment summarizes a series of articles that compared relative strengths of nine stock indices by (1) yield and (2) dividend vs price gaps using projected annual dividends from $1000 invested in the ten highest yielding stocks in each index for March.
This effort was part an ongoing one to respond to the question, "which dividend stocks were good, better, best, bad or ugly in February?"
The research was also in keeping with 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.
Dog Metrics Selected Ten in Each Index
Two key metrics determined the yields that ranked index or sector dog stocks: (1) stock price; (2) annual dividend. Dividing the annual dividend by the price of the stock declared the percentage yield by which each dog stock was 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 in an index assembled by experts 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 priced 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.
Each index displayed their annual dividends from $1000 invested in the ten highest yielding stocks compared to the aggregate single share prices of the top ten stocks therein to produce the summary graphs shown below. A previous post in February ranked the subject indices by risk in the following order from most risk to least:
3x9 and 1x9+1 Sectors
Results for the 3x9 Sectors Index, represented four sectors: six sectors: three from basic materials; three from financial; one each from utilities, consumer, technology, and services. The top dividend yield slots were claimed by basic materials firms, Oxford Resource (OXF), and Whiting USA Trust (WHX). The former leaders were cast off the list.
1x9+1 Sectors Index was composed of one top yielding stock from each of nine business sectors along with the best yielding runner-up from any sector to be the tenth in order to perfectly diversify a top ten sector index portfolio. The top ten 1x9+1 Sector stocks paying the biggest dividends for March were those two from basic materials: Oxford Resource; Whiting USA Trust; from financial, BBVA Banco Franca S.V. (BFR); from utilities, Inergy (NRGY); from consumer, Standard Register (SR); from technology, Cellcom Israel (CEL); from services, Baltic Trading (PBT); from healthcare, Veolia Evironement (VE); from conglomerates, Rayonier Inc. (RYN).
February dividends sank as stock prices increased under a bullish trend. Notice how dividends and prices both fell in March as less expensive stocks with lower dividends ascended to the top.
Russell 1000 Index Stocks
As of March 13, eight of the top ten stocks in this index showing the big yields were financial sector firms. Since October 2011, one firm held the top rank on the Russell list, American Capital Agency (AGNC), despite its 12% January dividend reduction from $5.60 to $5.00 annually.
Russell 1000 components as of March 13 showed projected dividend totals for $1000 invested in the top ten Russell stocks to drop dramatically toward their aggregate total single share prices. The bulls did hold sway again since November and Russell dividend yields dropped as stock prices increased. Since October, dividends from $1k invested in each of the top ten stocks declined 26.36% while single share prices for those stocks inclined 13.84%.
S&P 500 Stocks
As of March 13, four of the top ten stocks paying the biggest dividends in this index are technology firms. Frontier Communications (FTR) topped this list with a yield of 14.56% for March. The remaining six firms in the top ten include three consumer firms, one financial, one utility, and one service.
S&P 500 constituents showed projected dividend totals for $1000 invested in the top ten dropping dramatically toward their aggregate total single share prices. The bulls did hold sway since February and S&P top ten dividend yields dropped as stock prices increased. In the past month, dividends from $1k invested in each of the top ten S&P stocks by yield declined 13.47% while single share prices for those stocks inclined 3.88%.
NYSE International 100 Stocks
As of March 13, three of the top ten stocks paying the biggest dividends in this index were technology companies. Three more were financial companies. Other sectors represented in the NYSE International top ten included two healthcare, one industrial and top dog YPF Sociedad Anonima (YPF) the lone basic materials firm.
NYSE International 100 Index constituents showed increases in both projected dividend totals for $1000 invested in the top ten and their aggregate total single share prices over the five months. Dividends increased 3.02% while single share prices jumped 12.85% and the pattern repeated since February.
NASDAQ 100 Stocks
Seven of the top ten stocks showing the highest forward looking yields in this index were technology firms. Vodafone (VOD) claimed the top spot as of November last year throwing 5 to 8% yields. On March thirteenth VOD was tops again at 7.02%. The remaining three firms represented two business sectors consisting of two consumer firms and one service outfit.
NASDAQ 100 Index constituents reflected bull market symptoms as projected dividend totals for $1000 invested in the top ten decreased 6.65% as their aggregate total single share prices increased 28.2% over the five months graphed and the pattern repeated between February and March.
Three technology firms paying the biggest dividends on the Dow in February were: (1) AT&T (T); (2) Verizon (VZ); (8) Intel (INTC). As it has for the past year, AT&T continues atop this list. The rest of the Dow dogs include three healthcare, one industrial, one consumer, and two basic materials.
Dow 30 Index constituents reflected bull market symptoms as projected dividend totals for $1000 invested in the top ten decreased 8.36% as their aggregate total single share prices increased 11.07% over the five months graphed.
S&P 500 Aristocrats Stocks
Consumer goods firms constituted four of the top ten stocks paying the biggest dividends on the S&P 500 Aristocrats as of March 14. The leading consumer goods firm, Pitney Bowes (PBI) took over the top spot after Century Link (CTL) left the list in January when CTL failed to increase dividend in 2011 and broke the 25 year requirement to be listed.
The above graph turned bullish between February and March as S&P 500 Aristocrats top ten dividends from $1k invested in each of the dogs decreased 1.67% while single share prices for those stocks increased 1.21% for the month.
JPMorgan Sovereign Stocks
Top ten stocks that showed the biggest yields in March included firms from six of nine business sectors: two healthcare firms; two basic materials; one industrial; two services; two consumers; one technology. Lockheed Martin (LMT), the lone industrial, was at the top by yield.
JPMorgan Sovereigns Index constituents reflected bullish market symptoms as projected dividend totals for $1000 invested in the top ten decreased 3.86% as their aggregate total single share prices increased 8.72% over the five months graphed.
All Together Now
Each graph below shows 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) by index. Grouped together the graphs display five months of comparative gyrations of the nine indices described.
Click charts below to enlarge.
Relative Risk of Dogs by Index in March
A reader request to "add relative financial data on the companies selected" for a previous article comparing indices by annual yield projections has inspired a simple tool to gauge investment risk. The tool is best applied prior to the purchase of any 5 or 10 Dogs of the Index stocks at any point during the year. This information will continue to be reviewed monthly as one step toward Robert Shiller's admonishment to "make conservative preparations for possible bad outcomes."
Dog Teams Vie for Dividend Dominance
The following graph shows annual dividends projected from $1000 invested in each of ten stocks with the top yields in nine indices. The chart plotted projected yields as of a specific purchase date each month since October. Projected yields increased in the indices when average stock prices fell.
Relative yield strengths differentiated the indices graphed. The JPMorgan Sovereigns showed the lowest yield with a low trajectory swing down 3.86% over five data points since October. The Dow and NASDAQ behaved like a braided cord, the Dow dropped 8.36% while top ten of the NASDAQ 100 dropped 6.65%. Both found points within $.35 of the other as of March 13. The Aristocrats fell 2.23% in yield for the period. S&P fell 7.58% mostly in the last month. International dividend yield rose 3.02% between October and March. 1x9+1 sector dogs also rose but just .138% between October and March. Russell index dogs dropped the most 26.36% by yield. 3x9 sector dogs dropped the third most 7.23%.
Annual Dividends Forecast from $1k Invested in Each of 10 Top Yielding Stocks in 9 Indices
Dogs Fight for Dividend Dominance
Projected dividend yield amounts from nine indices over the past five months showed fundamental variations in stock performance. These nine representative market indices displayed their relative strengths in top end dividend yield. Yields in February ranked the sectors in the following order:
The 3X9 sector index held top yield status in February at $1875.87 annual dividends projected from $1000 invested in each of it's top ten stocks; 1X9+1 sector index projected $1533.33 per annum; Russell 1000 projected $1132.54 annually; S&P 500 dogs showed $787.54 in dividends annually; NYSE international dogs came in fifth best with $751.33 in dividends projected. At the lower level, S&P 500 aristocrats, NASDAQ 100, Dow, and JP Morgan sovereign dogs projected annual dividend payouts of $474.82, $410.01, $406.43, and $336.30 respectively from $1000 invested in each of their top ten stocks.
The 3X9 sector index retained top yield status in March projecting $1557.66; 1X9+1 sector index projected $1287.19 per annum; Russell 1000 projected $1090.47 annually. The order from top to bottom by dividends projected from $1000 invested in each of it's top ten stocks changed below third place in March. NYSE international dogs projected $791.36 annual dividends for a $40.03 increase of 5.33% and swapped places with S&P 500 dogs which projected $681.48 per annum. Below the aristocrats $466.90 annual dividends projected, the Dow index dogs at $395.14 annually, swapped places with NASDAQ by $.42 which showed $394.72 in annual dividends. The JPMorgan Sovereigns held firmly to ninth place as those dogs projected $335.13 from dividends projected from $1000 invested in each of it's top ten stocks.
Divergence from Share Price Ranked Investor Risk by Index
As dividend reality struck several high flying indices, the risk/dividends vs. price divergence chart was totally reordered in March. Top dog index from February 3x9 sectors plunged below 1x9+1 sectors dogs, followed by Russell in third position in total dividends projected from $1k invested in each of the top ten stocks. The only index showing a bear market increase in annual dividends was the NYSE international dogs.
The charts and accompanying graphs below compare the February vs March Divergence ranks of the nine indices for investment risk from high to low.
These nine indices and their component stocks will have ongoing stories to tell. These graphs, charts, and lists of companies will be updated again for publication each month.
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 are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.