Challengers Vs. Dogs Of The Dow In March

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 |  Includes: APLP, APU, BWP, DX, NRP, PNNT, STON, TCAP, UCBA, VNR
by: Fredrik Arnold

In Dividend Challengers: 16 Increases Expected By May 31 published on Seeking Alpha on March 16, David Fish defines Dividend Challengers as companies paying higher dividends for 5-9 years. This article utilized the Dogs of the Index strategy to sort Fish's Top 10 Challengers as of March 26 into a suitable grouping of 10 to trade.

This effort was part of an ongoing one to respond to the question: "Which dividend stocks were good, better, best, bad or ugly in March?" The research was also conducted 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 depicts the gyrations, graphically.

Dog Metrics Selected Ten

Two key metrics determined the yields that ranked these index 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 10 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), revealed 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 traded selected Dow stocks. Thus, the Dow was used as a standard of comparison to conclude this piece.

Comparative Methods Used

First, David Fish's Challengers list (from here) as of February 29 showing 195 companies that paid increasing dividends for 5-9 years was updated with pricing information from Yahoo Finance as of March 26, then sorted by yield to reveal the top thirty stocks. Market performance of these thirty selections was then reviewed using four months of historic projected annual dividend history.

To conclude, this article assessed the relative strengths of Fish's top ten dividend Challengers vs. the Dogs of the Dow March 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 provided a measure of risk.

Top Dividend Challengers

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The top ten Challenger stocks that paid the biggest dividends for February included companies representing four of nine market sectors. The top stock Dynex Capital Inc. (DX) was one of four in the financial sector. The balance of the top ten included one utility, one service, and four basic materials companies representing market sectors.

Dividend Challenger Stock Price Moves

Going back four months, two financial sector equities PennantPark Investment Corp. (PNNT), and Dynex Capital Inc. claimed the top yellow tint of this list by yield.

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

Click charts below to enlarge.

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Bullish price moves made since February 24: Dynex Capital posted a 1.7% price gain; Triangle Capital Corp (TCAP) entered a .508% price gain; StoneMor Partners LP (STON) etched a .441% gain; Vanguard Natural Resources (VNR) grew a 1.62% price improvement; Boardwalk Pipeline Partners LP (BWP) flowed out a .366% gain.

Special mention for no movement at all went out to Natural Resource Partners (NRP) which locked in at 00.00% movement neither up nor down last month.

Bearish moves for the same period were: PennantPark Investment Corp. (NASDAQ:PNNT) inked a 2.99% price decline; Exterran Partners LP (EXLP) notched a 7.26% price decline; AmeriGas Partners LP (APU) leaked 11.66% and blasted into the top ten by yield; similarly United Community Bancorp (UCBA) declined 5.9% in price to put itself within the top ten.

March Dividends vs. Prices & Challengers vs. Dow

The graphs below portray relative strengths of the top ten dividend Challengers index stocks by yield and price from December to March along with those of the Dow Index. 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: Challengers Drop Dividends as Prices Decline

This Challengers collection of 30 up and coming dividend payers showed .083% sinking dividends from $1k invested in each of the top ten stocks as their aggregate single share prices dropped 28.97%. The drop in price was attributed to two single-digit priced stocks replacing two double-digit priced stocks in the top ten.

The Dow index, on the other hand, exhibited near convergence as dividends from $1k invested in the top ten decreased 2.78% while aggregate total single share prices sank 11.83% to meet dividends near the $400 mark in the past month.

The Challengers index showed 126.14.% higher dividends paid from an aggregate single share price 46.5% 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; 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. Prices and Returns on equities in this article, unless noted otherwise, are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.