Dividend Challengers Meet Dogs Of The Dow In April

by: Fredrik Arnold

On April 16, David Fish published his latest findings in "Dividend Challengers: 25 Increases Expected In The Next 11 Weeks" here on Seeking Alpha. David's dividend challenger stocks are distinguished as companies that have paid higher dividends for five to nine straight years.

Dogs of the Index Metrics Cull Out Current Bargains

Given the dividend challengers, this article uses two key numbers to rank those stocks: 1) stock price, and 2) annual dividend. Dividing the annual dividend by the price declared the percentage yield by which each dog stock was ranked.

Historically, investors utilized this ranking system to select portfolios of five or 10 stocks in any one grouping to trade. They optimistically awaited the results from their investments in the lowest priced, highest yielding stocks and hoped that the price of every stock they now owned climbed higher (having locked in a high-yield percentage at purchase).

The 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.

Classic Dogs of the Index theory trades selected Dow stocks. Thus, the Dow is used as a standard of comparison to conclude this article.

The top 30 dividend challengers stocks listed below were ranked by yields calculated as of April 27.

Dividend Challengers

Ten challenger dogs posting the biggest dividend yields in April included firms representing three of nine market sectors. The top stock, Dynex Capital (NYSE:DX), was one of four in the financial sector. The other financial firms in the top 10 were PennantPark Investment (NASDAQ:PNNT), Triangle Capital (NYSE:TCAP) and United Community Bancorp (NASDAQ:UCBA). The balance of the top 10 included one service, StoneMor Partners LP (NASDAQ:STON), and five basic materials firms: Exterran Partners LP (EXLP), Natural Resource Partners LP (NYSE:NRP), Vanguard Natural Resources LLC (NYSE:VNR), Crestwood Midstream Partners LP (NYSE:CMLP), and Boardwalk Pipeline Partners LP (NYSE:BWP), representing market sectors.

Up and Down Moves for Dividend Challenger Dogs

The past four months Dynex Capital claimed the top yellow tint at the top of the list below by yield. Color code shows: (Yellow) firms listed in first position at least once between January and April; (Cyan Blue) firms listed in tenth position at least once between January and April; (Magenta) firms listed in twentieth position at least once between January and April; (Green) firms listed in thirtieth position at least once between January and April. Duplicates are depicted in color for highest ranking attained.

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Bullish upward price moves since March 26 were made by four top 10 dividend challenger stocks: Triangle Capital entered a 2.58% price gain, StoneMor Partners LP etched a 5.63% gain, Vanguard Natural Resources had a 1.91% price improvement, and Boardwalk Pipeline Partners LP saw a 0.365% gain.

Bearish downward price moves for the same period hit the rest of the top 10 challenger dogs: Top dog Dynex Capital posted a 1.77% price drop, PennantPark Investment inked a 1.035% price decline, Exterran Partners LP notched a 4.44% price decline, Natural Resource Partners dug a 2.41% price hole, AmeriGas Partners LP (NYSE:APU) leaked just 0.514% but fell out of the top 10 by yield, Crestwood Midstream Partners LP dropped 9.56% in price to vault into the top 10 by yield, and United Community Bancorp declined 0.847% in price to remain number 10 of 10.

Dividend Vs. Price Results Match Challengers Vs. Dow

The graphs below show relative strengths of the top 10 dividend Challengers index stocks by yield and price from January to April along with those of the Dow index. Using four months of historic projected annual dividends from $1,000 invested in the 10 highest yielding stocks each month and the aggregate single share prices of those 10 stocks created the data points for each month, shown in green for price and blue for dividends.

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Conclusion: Challengers Jacked Dividends as Price Dropped

This Challengers collection of 10 up-and-coming dividend yielders in April showed a 0.471% nudge in dividends from $1,000 invested in each of the top 10 stocks as their aggregate single share price tumbled 6.68%. Who let the bear out?

The Dow index, on the other hand, saw the dividend from $1,000 invested in each of the top 10 creep up 2.12%, while aggregate total single share price jumped 11.18% to exceed dividends by $44.50 past the $400 mark in April, signaling an overbought condition.

The Challengers index showed 122.5% higher dividends from an aggregate single share price 55.08% lower than that of the Dow.

At the end of each month, a summary concludes this series of articles by showing results of yield and price for Dividend Achievers, the Carnevale Power 25 and new Super 29 indices, along with David Fish's Champions, Contenders, Challengers, and Composite lists. Stay tuned and follow these intrepid dogs.

Disclosure: I am long JNJ, INTC, VZ, T.

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.