This end of month installment summarizes a series of articles that compared relative strengths of nine stock indices by (1) yield and (2) dividend vs. price gaps. This was done using projected annual dividends from $1000 invested in the ten highest yielding stocks in each index for March. The articles in this series reported April results from 3x9 and 1X9+1 Sector indices, the Russell 1000, S&P 500, NYSE International 100, NASDAQ 100, Dow 30, S&P 500 Aristocrats, and JPMorgan Sovereigns indices. It must be noted that the projected dividends for all the stocks listed below were "guesstimates" based on past performance of these companies. Whether these dividends might or might not be paid is entirely at the whim of corporate governance.
This reporting effort therefore was part an ongoing one to respond to the question, "which dividend stocks were good, better, best, bad or ugly for April?"
The research was also 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 graphically depicts the gyrations.
Dog Metrics Selected Ten in Each Index
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
Top ten dogs for each index displayed their annual dividends from $1000 invested in the ten highest yielding stocks in the index compared to the aggregate single share prices of the top ten stocks therein to produce the summary graphs shown below. Previous posts in March ranked the subject indices by risk in the following order from most risk to least:
3x9 and 1x9+1 Sectors
Top ten 1x9+1 Sector stocks showing the biggest projected annual dividend yields in April were two from financial, BBVA Banco Francs S.V.(BFR), and Armour Residential REIT (ARR); from services, Alon Holdings - Blue Sq (BSI); from basic materials, Whiting USA Trust (WHX); from consumer, Standard Register (SR); from utilities, Inergy (NRGY); from technology, Otelco (OTT); from industrial goods, Veolia Evironement (VE); from healthcare, PDL BioPharma (PDLI); from conglomerates, Rayonier Inc. (RYN). Recent political moves in Argentina threaten payment of the BFR dividends "for the foreseeable future."
Below are graphs reporting relative strengths of the top ten 3x9 Sector and 1x9+1 Sector index stocks by yield as of April 17, 2012. Projected annual dividend history 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.
February dividends sank as stock prices increased under a bullish trend. Notice how dividends and prices both fell in March as less expensive stocks with lower dividends ascended to the top. For April a classic bear market pattern emerged as aggregate top ten stock price sagged 30.9% while projected dividends from $1k invested in each of the ten 3x9 Sector stocks soared 4.46%.
Russell 1000 Index Stocks
As of April 17, eight of the top ten stocks in this index paying the big dividends were again mostly financial sector firms. Since October 2011, one firm held the top rank yellow tint of the Russell list, American Capital Agency (AGNC), despite its 12% January dividend reduction from $5.60 to $5.00 annually.
Russell 1000 components showed projected dividend totals for $1000 invested in the top ten Russell stocks stabilizing at the $1,090 level as their aggregate total single share price dropped 10.31% in the past month. Since October, dividends from $1k invested in each of the top ten stocks declined 26.36% while single share prices for those stocks inclined 2.1%.
S&P 500 Stocks
As of April 17, four of the top ten stocks paying the biggest dividends in this index were technology firms. Frontier Communications (FTR) topped this list at 9 to 15% yields for eleven months in 2011. It's tops again at 9.41% for April 2012. The remaining six include three consumer firms, one financial, one utility, and one service.
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S&P 500 constituents showed projected dividend totals for $1000 invested in the top ten rising away from their aggregate total single share price point for April. The bulls have held sway since February as S&P 500 top ten dividend yields dropped 10.47% as stock price increased 6.32%. In the past month, however, dividends from $1k invested in each of the top ten S&P stocks by yield increased 3.46% while the aggregate single share price for those stocks inclined 2.35%. This decline in price happened when the $10 higher priced Reynolds (RAI) stock replaced Altria (MO) in the top ten.
NYSE International 100 Stocks
As of April 17, four of the top ten stocks paying the biggest dividends in this index were technology firms. Three more were financial companies. Top dog YPF Sociedad Anonima (YPF) is a basic materials firm in oil and gas. Recent political moves in Argentina threaten payment of the YPF dividend "for the foreseeable future."
NYSE International 100 Index top ten dogs showed an 29.42% increase in projected dividends from $1000 invested in each of the top ten and a 12.2% decline in aggregate total single share price over the past six months. Between March 13 and April 17, however, dividends increased 25.62% while single share prices dropped 22.2%.
NASDAQ 100 Stocks
Seven of the top ten stocks showing the highest forward looking yields in this index were technology firms. Vodafone (VOD) from this sector claimed the top spot as of November last year, throwing off 5 to 8% yields. On April 18th, VOD was tops again at 6.95%. The remaining three firms for April represented two business sectors consisting of two consumer goods firms and one service outfit.
Hints of an earlier bull market showed in the NASDAQ 100 over six data points graphed. Dividends from $1k invested in each of the top ten dogs decreased 4.32% as aggregate single share price for those ten jumped up 15.15% since October.
However, NASDAQ 100 Index dogs reflected bear market symptoms for April as projected dividend totals for $1000 invested in the top ten increased 2.49% as their aggregate total single share prices dropped 10.05% over the past month.
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.
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Dow 30 Index dogs reflected bull market symptoms as projected dividend totals for $1000 invested in the top ten decreased 6.42% as 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 (CVX) 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 (DD).
S&P 500 Aristocrats Stocks
Consumer goods firms constituted four of the top ten stocks paying the biggest dividends on the S&P 500 Aristocrats as of April 18. The leading consumer goods firm, Pitney Bowes (PBI) took over the top spot after Century Link (CTL) left the list in January when CTL failed to increase its dividend in 2011 and broke the 25 year requirement to be listed.
S&P 500 Aristocrats Index constituents reflected bear market symptoms as projected dividend totals for $1000 invested in the top ten increased .343% as their aggregate total single share prices decreased 14.84% over the six months graphed.
The above graph turned especially bearish between March 13 and April 18 as S&P 500 Aristocrats top ten dividends from $1k invested in each of the dogs increased 2.64% while single share prices for those stocks decreased 6.87% for the month.
JPMorgan Sovereign Stocks
Top ten 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; one technology. Lockheed Martin (LMT), the lone industrial, was at the top by yield.
JPMorgan Sovereigns Index constituents reflected bullish market symptoms as projected dividend totals for $1000 invested in the top ten 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 ten projected dividends from $1k invested in each of the dogs decreased .847%, while aggregate single share prices for those stocks increased 1.1% for the month.
All Together Now
Each graph below shows monthly points of comparison between annual projected dividends resulting from $10,000 invested as $1,000 each in the top ten high yield stocks (blue points) versus the total prices of one share of each of the ten stocks (green points) by index. Grouped together, the graphs display five months of comparative gyrations of the nine indices described.
Dog Teams Vie for Dividend Dominance
The following graph shows annual dividends projected from $1000 invested in each of ten stocks with the top yields in nine indices. The chart plotted projected yields as of a specific purchase date each month since October. Projected yields increased in the indices when average stock prices fell.
Relative yield strengths differentiated the indices graphed. The JPMorgan Sovereigns showed the lowest yield with a low trajectory swing down 4.67% over six data points since October. The Dow and NASDAQ dividends behaved like a braided cord until February and thereafter tracked each other within $5 from $1000 invested in each of their ten stocks. The Dow dropped 6.42% while the NASDAQ 100 top ten dropped 4.32% since October. Both found points within $1.05 of the other as of April 17. The Aristocrats dividends rose .343% for the period. S&P fell 4.38% since October. International dividends from $1000 invested in the top ten stocks rose 3.02% between October and March then kicked up an additional 25.62% come April. The 1x9+1 sector dogs rose 7.18% between October and April. Russell index dogs dropped the most 26.36% by yield. 3x9 sector dogs dropped 7.23% since October.
Annual Dividends Forecast from $1k Invested in Each of 10 Top Yielding Stocks in 9 Indices
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April Relative Risky Dogs by Index
A reader request to "add relative financial data on the companies selected" for a previous article comparing indices by annual yield projections has inspired a simple tool to gauge investment risk. The tool is best applied prior to the purchase of any 5 or 10 Dogs of the Index stocks at any point during the year. This information will continue to be reviewed monthly as one step toward Robert Shiller's admonishment to "make conservative preparations for possible bad outcomes."
Divergence from Share Price Showed Investor Risk for each Index
The charts and accompanying graphs below compare the March vs. April Divergence ranks of the nine indices for investment risk from high to low.
These nine indices and their component stocks will have ongoing stories to tell. These graphs, charts, and lists of companies will be updated again for publication each month.
Disclaimer: This article is for informational and educational purposes only and should 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.