This article reports results for the Dow 30 Index as of April 18 using a once per year trading system triggered by yield, called the "Dogs of the Index", to determine the best of the best dividend stocks.
Previous articles in this series reported April results from 3x9 and 1X9+1 Sector indices, the Russell 1000, S&P 500, NYSE International 100, and NASDAQ 100 indices. Upcoming articles this week report dog metrics applied to two additional indices: S&P 500 Aristocrats; JPMorgan New Sovereigns.
Dogs of the Index Metrics
Two key numbers determined the yields that ranked stocks in each index: (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 selected portfolios of five or ten stocks in any one index or sector by yield to trade. They awaited the results from their investments in the lowest priced, highest yielding stocks selected and prayed that the price of every stock they now owned climbed 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 increase (and whose dividend yields therefore decrease) could be sold off once each year to sweep gains and reinvest seed money into higher yielding stocks in the same index.
Investor Empowerment from the Dow 30
The Dow Jones Industrial Average (DJIA) is a price-weighted index of 30 blue-chip U.S. companies representing nine economic sectors including financial service, technology, retail, entertainment and consumer goods. The leadership position of the component stocks in the DJIA tends to result in an extremely high correlation of the DJIA to broader U.S. indexes, such as the S&P 500 Index providing additional opportunities.
April 2012 Dow Chart
Three technology firms showing the biggest dividend yields on the Dow as of April 18 were: (1) AT&T (T) (2) Verizon (VZ) (8) Intel (INTC). The rest of the Dow 10 dogs include three healthcare, one industrial, one basic materials, and two consumer firms. Thirty Dow stocks include seven technology companies, three consumer goods, four financial, four services, four basic materials, two industrial, three health care, no utilities, and three conglomerates representing the market sectors.
Vertical moves by Dow Index Dogs
As it has for the past year, AT&T continues to wear the yellow tint atop this list.
Color code shows: (Yellow) firms listed in first position at least once between December 30, 2011 and April 2012; (Cyan Blue) firms listed in tenth position at least once between December 30, 2011 and April 2012; (Magenta) firms listed in twentieth position at least once between December 30, 2011 and April 2012; (Green) firms listed in thirtieth position at least once between December 30, 2011 and April 2012. Duplicates are depicted in color for highest ranking attained.
Bullish upward price moves since March 13 were made by just four of the top ten Dow 30 dogs: Merck & Company's (MRK) share price increased .3135%; Pfizer Inc. (PFE) saw its share price pop 1.99%; Intel Corporation showed a price gain of 1.67%; Dupont (DD) showed a 1.12% price improvement for April and dropped out of the top ten.
Bearish downward price moves for the same period hit the rest of the dogs of the Dow 30 top ten: AT&T Inc. share price decreased 2.78%; Verizon Communications saw a 4.61% price slump; General Electric's (GE) share price dropped 2.5%; Johnson & Johnson (JNJ) sagged 3.17%; Procter & Gamble (PG) showed a 1.69% price swoon; Kraft Foods' (KFT) price declined .467%; Chevron's (CVX) share price dropped 7.015% and jumped into the top ten for April.
Dividend vs. Price Results for Dow 30 Dogs
Relative yield strengths of the top ten Dow 30 Index stocks were graphed as shown below as of April 18, 2012. Projected annual dividends from $1000 invested in the ten highest yielding stocks each month and the total single share prices of those ten stocks, created the data points for each of the past six months shown in green for price and blue for dividends.
Click to enlarge:
Dow 30 Index dogs reflected bull market symptoms as projected dividend totals for $1000 invested in the top ten decreased 6.42% while their aggregate total single share prices increased 23.5% over the six months graphed.
The pattern mostly continued bullish between March 13 and April 18 as Dow 30 top ten dividends from $1k invested in each of the dogs increased 2.11% while single share prices for those stocks increased 11.18% for the month. This double increase was mostly caused by Chevron jumping into the top ten, bringing nearly double the share price and double the dividend amount into the dog pound than the stock it replaced, Dupont.
Will Dow 30 Index bullish price gains and dividend decline continue into May? Stay tuned.
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.