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May 7, 2012 Barron's published its annual list of America's 500 top companies by sales. Also known as, "The Dow Jones Business and Financial Weekly," Barron's survey of the top 500 firms by sales was prepared by HOLT, part of Credit Suisse (NYSE:CS) which measured, graded, then ranked all companies based on three measures collected from reports from the companies' latest reported fiscal year (mostly 2011):

1. "Median three-year return on investment, based on a proprietary cash-flow metric called CFROI"

2. "Change in CFROI in the latest fiscal year relative to the three-year median"

3. "Sales growth in the latest fiscal year, adjusted for divestitures (and, in the case of cigarette companies, for taxes that are collected and remitted to the government)"

Given the measures, each company was graded in each of the three categories with those making the top one-fifth graded A, while the bottoms were graded F. HOLT thereby assigned grade point averages (GPA) for each company based on 4 for A down to 0 for F. Companies that restated financial data or operating under bankruptcy rules were excluded.

Dogs of the Index Metrics Cull Out Current Bargains

For this article, 87 companies that earned a GPA of 3.0 or above were re-ranked using the two key dog performance metrics: (1) stock price; (2) annual dividend. Dividing the annual dividend by the price declared the percentage yield by which each dog stock was ranked.

Historically dividend dog investors utilized this ranking system to select portfolios of five or ten stocks in any one index, sector, or survey 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 top thirty stocks in the Barron's 500 Dividend Dogs listed below were ranked by yields calculated as of May 11. Bracketed numbers after the stock name indicate the rank earned.

Barron's 500 Dividend Dogs top ten stocks showing the biggest yields as of May 11 included equities representing four of nine market sectors. The top stock as revealed by Yahoo Finance data, was one of three in the basic materials sector, Southern Copper (NYSE:SCCO). The other two basic materials firms were: Cliffs Natural Resources (NYSE:CLF), and Dupont (NYSE:DD). The balance of the top ten included: four financial, Canadian Imperial Bank (NYSE:CM), Royal Bank of Canada (NYSE:RY), Toronto Dominion Bank (NYSE:TD), and BlackRock (NYSE:BLK); one consumer goods firm, Philip Morris International (NYSE:PM); two industrial goods makers, Eaton (NYSE:ETN), and Emerson Electric (NYSE:EMR) representing the sectors.

Up and Down Moves for Barron's 500 Dividend Dogs

Just one firm, Southern Copper, 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 February and May; (Cyan Blue) firms listed in tenth position at least once between February and May; (Magenta) firms listed in twentieth position at least once between February and May; (Green) firms listed in thirtieth position at least once between February and May. Duplicates are depicted in color for highest ranking attained.

(click to enlarge)(click to enlarge)

A bullish upward price move since April 16 was made by only one of the top ten April Barron's 500 Dividend Dogs: Abbott Laboratories (NYSE:ABT) grew its price 3.61% and exited the top ten by yield in May.

Bearish downward price moves for the same period hit the rest of the top ten April Barron's 500 Dividend Dogs: Top dog Southern Copper price retrenched 1.89%; Canadian Imperial Bank showed a 3.19% price drop; Royal Bank of Canada posted a 6.46% decline; Cliffs Natural Resources delivered a 17.64% decline; Toronto Dominion Bank deposited a 5.01% price drop; Phillip Morris International stubbed out a 1.89% decline; Eaton cranked out a 5.75% drop; Dupont poured out a 1.99% swoon; Emerson Electric zapped 4.16%; BlackRock dropped 5.58% to enter the top ten dog field by yield, replacing Abbott Labs.

Dividend vs. Price Results

Below you will find the relative strengths for Barron's 500 Dividend top ten B+ stocks by yield which was graphed as of May 11, 2012. Five 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 created the data points for each month shown in green for price and blue for dividends.

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Conclusion: Barron's 500 B+ Dividend Dogs Shown as Overbought

Never in the past year of investigating various dividend dog indices has a list of ten stocks displayed such a gap of aggregate single share prices exceeding projected dividends from $1k invested in those ten equities. These must be the most overbought of the overbought stocks.

A mostly bearish trend shows in the Barron's 500 top ten dogs dividend vs. price performance between January and May. Aggregate single share price for the top ten declined 1.72% while projected dividends from those ten invested at $1k each increased 2.49% for the period.

The anomalous drop in price between January and February was attributed to a $200 priced equity dropping out of the top ten. Conversely the spike in aggregate price in May is attributable to that same $200 stock re-entering the dog pound then.

May aggregate single share stock price for the Barron's 500 top ten dogs exceeded the total annual dividend returns from $1k invested in each of those stocks by over $290.97 or 70.55%. Compared to the Dow in May these Barron's 500 top ten dogs showed a 48.49% higher aggregate single share price with just 2.28% greater dividends from $1k invested in each than the dogs of the Dow. Knowing the Dow index is overbought, these show just how much more overbought are the B+ dogs of the Barron's 500.

The next article in this series turns from the B+ to the C- side of Barron's survey of the top 500 firms by sales. 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.

Source: Barron's 500 Dividend Dogs: Overbought In May