In December this monthly report series began applying dog dividend methodology to each of eight major market sectors. In alphabetical order those sectors were: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities. A ninth sector, conglomerates, according to Yahoo Finance, contained just eight firms, five of which paid dividends. Thus the reporter declined to apply dog metrics to such a small group.
Dogs of the Index Metrics Selected Ten Top Financial Stocks by Yield
Two key metrics determined the yields that ranked these 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 or sector by yield to trade. They await the results from their investments in the lowest priced, highest yielding stocks 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), revealed how high yielding stocks whose prices increased (and whose dividend yields therefore decreased) could be sold off once a year to sweep gains and reinvest the seed money into higher yielding stocks in the same index.
Comparative Methods Used
First, the entire list of financial sector companies was sorted by yield as of April 5 using Ycharts.com to reveal the top thirty. Market performance of these thirty selections was then reviewed using four months of historic projected annual dividend history from Yahoo Finance along with annual divided projections adjusted for market realities.
Thereafter, this article assessed the relative strengths of the financial sector top ten dividend dogs as of April 5 vs. the Dogs of the Dow March 13 stock list. Annual dividends from $1000 invested in the ten highest yielding stocks in the sector and index were compared to the aggregate single share prices of the top ten stocks in each.
Financial Dividend Dogs
Click to enlarge.
Top ten financial sector dogs paying the biggest dividend yields in March represented seven industries. Top financial sector stock BBVA Banco (BFR) was the lone foreign regional bank. Armour Residential REIT (ARR) in second place was one of six REITs qualifying as top ten dogs. Four, American Capital (AGNC), Armour, Two Harbors (TWO), and CYS Investments (CYS), are residential REITs; Chimera (CIM) is a diversified REIT, and Resource Capital (RSO) is a retail REIT. The remaining three industries were represented by MCG Capital Corporation (MCGC), financial asset management, Invesco Mortgage (IVR), mortgage investment, and Arlington Asset Investment (AI), investment brokerage.
Downward Dog Was the Main Move in March
Going back four months, BBVA Banco rose from tenth place in October to take the lead by yield in December by virtue of a 23% price drop in two months. January found American Capital Agency back on top. February had Armour Residential there. Another price drop returned BBVA Banco to the top slot in March.
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.
As headlined, just one top ten financial dog made a bullish vertical move since February 24. Invesco Mortgage Capital soared 1.24%. Every other top ten financial dog succumbed to a bearish trend:
BBVA Banco dropped 6.04% in price; Armour Residential REIT swooned 4.08%; American Capital Agency tanked 1.924%; Two Harbors Investment was down 2.52% in price; MCG Capital Corporation declined 11.13%; Chimera Investment Corporation dropped 8.82%%; Arlington Asset Investment Corporation plunged 2.56%; Resource Capital Corporation was down 9.02%% in price; CYS Investments hemorrhaged 2.43%.
Dividend vs. Price Results vs. Dow Dogs
A graph below of relative strengths for the top ten financial dividend sector stocks by yield as of April 5, 2012 allowed comparison to those of the Dow. Six months of historic projected annual dividend history from $1000 invested in the ten highest yielding stocks and the total single share prices of those ten stocks created the data points for each month shown in green for price and blue for dividends.
Conclusion: Financial Dog Prices and Dividends Sag
The March financial collection of ten top dividend payers showed dividends dropping 10.76% as prices also declined 11.1% since October. In the past month projected dividends from $1,000 invested in each of the top ten dropped .0055% as aggregate share price tumbled 2.9%. The bear was on a tear.
Meanwhile, the Dow index moved back to near convergence as dividends from $1,000 invested in the top ten came to within $8 of their aggregate total single share prices in March. As of April 5 financial sector top ten dogs showed $1215.33 or 307.57% more dividends (with equally bigger risk) at a $284.58 or 70.63% lower aggregate share price than the Dow.
A monthly summary will soon compare results in yield and price for all eight sectors reported in this series: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.