In Dividend Contenders: Twelve Increases Expected in the Next Eleven Weeks published on Seeking Alpha on March 16, David Fish defined Dividend Contenders as companies that have paid higher dividends for 10-24 years. This article uses the Dogs of the Index strategy to sort Fish's Top 10 Contenders as of March 23 into a suitable grouping to trade.
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 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 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 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 writing.
Comparative Methods Used
First, David Fish's Contenders list (from here) as of February 29 showing 161 companies that paid increasing dividends for 10-24 years was updated with pricing information from Yahoo Finance as of March 23, 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.
In conclusion, this article assessed the relative strengths of the top ten dividend Contenders 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.
The top ten Contender stocks paying the biggest dividends for February included firms representing four of nine market sectors. The top stock Inergy LP (NRGY) was one of two in the utilities sector. The balance of the top ten included one consumer, three financial and four basic materials firms representing market sectors.
Dividend Contender Stocks Moved Vertically
Going back four months, one utility sector equity Inergy LP claimed the yellow tint at the top 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 on charts below to enlarge.
Bullish vertical moves since February 24 were made by just three top ten contenders: Omega Healthcare Investors (OHI) posted a .76% price gain; Buckeye Partners LP (BPL) gushed a 1.61% price gain; National Retail Properties (NNN) built a .15% price gain.
Bearish moves for the same period were experienced by the rest of the pack: Top dog Inergy LP delivered a 9.78% price decline to solidify its hold at the top by yield; Vector Group Ltd. (VGR) flicked off a 4.48% decline in price; Suburban Propane Partners (SPH) leaked a 6.38% decline; NuStar Energy LP (NS) price dropped 2.37%; TC Pipelines LP (TCP) declined 1.28% in price; Universal Health Realty Trust (UHT) price sagged .18%; Alliance Resource Partners LP (ARLP) swooned 5.95% within the top ten.
March Dividends vs. Prices & Contenders vs. Dow
The graphs below portray relative strengths of the top ten Dividend Contenders 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.
Conclusion: Contender Dividends Achieve Lift-off
This Contenders collection of top ten dogs by yield show dividends from $1k invested in each of the top ten stocks increased 3.94% as their aggregate single share prices dropped 2.6%. 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 Contenders index now pays 104.74% higher dividends from about the same aggregate single share price as the Dow
At the end of each month, two summaries conclude this 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. 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.