November 23, 2011, Seeking Alpha blogger, respected stock analyst, and creator of Fastgraphs, Chuck Carnevale, published Our 25 Dividend Growth Stocks Are Dirt Cheap. There he listed top 25 blue chip dividend growth stocks that: (1) were available at current valuations; (2) were significantly below their historical norms; (3) remained profitable through the great recession of 2008 and 2009.
This portfolio of companies he said:
...offers a three-pronged opportunity for above-average future total returns at below-average risk. We expect that each company will benefit in the future from a potential expansion in their PE ratios coupled with future earnings growth and finally followed by dividend increases offering a return kicker.
That article ranked these stocks by 5 year estimated total returns ranging from a high of 38.2% down to 10.8%.
Dogs of the Index Metrics Cull Out Current Bargains
Given the Carnevale Power 25 index, this article used two key numbers to rank his 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.
Historically, Investors utilized this ranking system to select portfolios of five or ten stocks in any one index or sector to trade. They awaited the results from their investments in the lowest priced, highest yielding stocks and prayed that the price of every stock they now owned climbed higher (having locked in a high yield percentage at purchase).
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) can be sold off once each year to sweep gains to reinvest the seed money into higher yielding stocks in the same index.
The Carnevale Power 25 list below was ranked by yields based on estimated annual dividends to reveal the dogs therein. Numbers after the company names in brackets [ ] indicate Mr. Carnevale's ranking for each stock by total estimated returns.
Here's the list ranked by yield calculated as of April 27.
Carnevale's top ten stocks paying the biggest dividends as of April 27 included firms representing five market sectors. The top stock as revealed by Yahoo Finance data, was one of two in the service sector, RR Donnelley & Sons (NASDAQ:RRD), and Sysco Corporation (NYSE:SYY) in fifth place. The balance of the top ten included: three consumer goods, Avon Products (NYSE:AVP), Procter & Gamble (NYSE:PG), and Pepsico (NYSE:PEP); one basic materials, Alliance Resource (NASDAQ:ARLP); one utility, Nextera Energy (NYSE:NEE); three healthcare firms, Novartis AG (NYSE:NVS), Johnson & Johnson (NYSE:JNJ), and Abbott Laboratories (NYSE:ABT) representing market sectors. The full list of 25 stocks has five service, five healthcare, three consumer goods, one financial, three basic materials, five industrial, one utility, one technology and no conglomerates representing market sectors.
Up and Down Moves for Carnevale 25 Power Dogs
Just one firm, RR Donnelly, has stayed at the top of this list by yield for the four months surveyed.
Color code shows: (Yellow) firms listed in first position at least once between December 2011 and April 2012; (Cyan Blue) firms listed in tenth position at least once between December 2011 and April 2012; (Magenta) firms listed in fifteenth position at least once between December 2011 and April 2012; (Green) firms listed in twenty fifth position at least once between December 2011 and April 2012. Duplicates are depicted in color for highest ranking attained.
Bullish upward price moves in the past month (since March 26) were made by five of the top ten Power 25 dogs: Avon Products applied a 14.2% price gain; Nextera Energy Inc. connected with a 6.67% surge; Johnson & Johnson wrapped up a .309% hike; Abbott Labs grew 2.42% in price; Pepsico price popped 1.64%;
Bearish downward price moves for the same period hit the rest of the top ten Carnevale Power 25 dogs: top dog RR Donnelley & Sons price sagged .707%; Alliance Resource showed a 6.58% price decline; Novartis dropped .271% in price and powered into the top ten with a 53.75% surge in estimated annual dividend; Sysco delivered a 3.08% price drop; Proctor & Gamble packaged a .830% price decline; Chevron Corp (NYSE:CVX) escaped the top ten even as it's price dropped .132%.
Dividend vs. Price Results
Below is the graph of relative strengths for the top ten Carnevale Power 25 index stocks by yield as of April 26, 2012. Four 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 creates the data points for each month shown in green for price and blue for dividends.
Conclusion: Carnevale Power Dog Price vs. Dividend Points to Overvaluation
This Carnevale collection of its top ten dividend payers displayed March aggregate single share stock price for the top ten Carnevale dogs exceeding the total annual dividend returns from $1k invested in each of those stocks by over $125 or 29.28%. In April, the price over dividend gap retreated to just over $55 or 12.57% for this collection of low risk but overvalued power dogs.
Compared to the Dow, this index come April showed 12.75% higher prices with 9.2% higher projected annual dividends than the dogs of the Dow.
At the end of each month, a summary concludes this series of articles by showing results of yield and price for these Carnevale Power 25 stocks compared to Carnevale's New Super 29 Dividend Dogs, David Fish's Champions, Contenders, Challengers, and Composite lists, along with the Dow. Stay tuned and follow these intrepid dogs.
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.