This article reports results for the JPMorgan Sovereigns Index as of April 19, using a once-per-year trading system triggered by yield called the "Dogs of the Index." It is used to determine the best of the best dividend stocks.
Dogs of the Index Metrics
Two key numbers determined the yields that ranked stocks in each index: 1) stock price, and 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 10 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 hoped 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 JPMorgan Sovereigns Index
Twenty-two JPMorgan Sovereigns Index stocks are listed below by yield as of April 19 (as per Yahoo Finance data). This collection came to light on July 22, 2011, when Thomas Lee, an equity strategist with JPMorgan, published a note titled "Corporates are the New Sovereigns: 22 stocks to own around sovereign default." The Barron's article covering Lee's announcement defined a Sovereign as an entity that can print money or tax at will. Lee's report listed 22 corporate stocks that show less risk of default than the sovereign U.S. government, based on five-year credit spreads, free cash flow yields exceeding bond yields, ratings of overweight by JPMorgan, and showing upside to their target prices.
The top 10 stocks that showed the biggest yields in April included firms from six of nine business sectors: two healthcare firms, two basic materials, one industrial, two services, two consumers, and one technology. Lockheed Martin (LMT), the lone industrial, was at the top by yield.
For the whole 22 JPMorgan Sovereign dividend payers, four technology companies, three consumer goods, no financial, five services, two basic materials, two industrial, four health care, no utility, and two conglomerates represented the market sectors.
Up and Down Moves for JPMorgan Sovereign Dogs
With Lockheed Martin wearing the yellow tint at the top in April, the colors on the charts below revealed: (Yellow) firms listed in first position at least once between Dec. 30, 2011, and April 2012; (Cyan Blue) firms listed in fifth position at least once between Dec. 30, 2011, and April 2012; (Magenta) firms listed in tenth position at least once between Dec. 30, 2011, and April 2012; (Green) firms listed in fifteenth position at least once between Dec. 30, 2011, and April 2012. Duplicates were depicted in color for highest ranking attained.
Click to enlarge images.
Bullish upward price moves since March 13 were made by seven of the top 10 JP dogs: Merck (MRK) injected a .366% price gain; Abbott Laboratories (ABT) scripted a .882% price gain; Raytheon (RTN) sparked a .057% gain; Pepsico (PEP) poured out a 3.26% gain in share price; United Parcel Service (UPS) delivered a 2.11% gain; Coca-Cola (KO) popped a 5.13% increase; and last (and best), Norfolk Southern (NSC) rolled out a $3.75 or 5.77% price improvement.
Bearish downward price moves for the same period hit the rest of the top 10 dogs of the JPMorgan Sovereigns Index. Lockheed Martin piloted a .088% single share price drop; ConocoPhillips (COP) drilled a 5.96% price slump; and Freeport-McMoRan (FCX) dug down for a .236% share price decline to keep itself a top 10 yield dog again.
Dividend vs. Price Results for JPMorgan Sovereigns Index Dogs
Below is a graph of the relative strengths of the top 10 JPMorgan Sovereigns Index stocks by yield as of April 19, 2012. Six months of historic projected annual dividend history from $1,000 invested in the 10 highest-yielding stocks each month, and the total single share prices of those 10 stocks creates the data points for each month, shown in green for price and blue for dividends.
JPMorgan Sovereigns Index constituents reflected bullish market symptoms as projected dividend totals for $1,000 invested in the top 10 decreased 4.67%, as their aggregate total single share prices increased 10.94% over the six months graphed.
The bullish pattern continued between March and April as JPMorgan Sovereigns Index top 10 projected dividends from $1,000 invested in each of the dogs decreased .847%, while aggregate single share prices for those stocks increased 1.1% for the month.
What direction will JPMorgan Sovereigns prices and dividends go in May? Stay tuned. Meanwhile, a monthly summary will soon compare results in yield and price for all nine indices reported in this series: 3x9 and 1X9+1 Sector indices; Russell 1000; S&P 500; NYSE International 100; NASDAQ 100; Dow 30; S&P 500 Aristocrats; and JPMorgan Sovereigns.
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.