Introducing Top Market Cap Dividend Dogs

by: Fredrik Arnold

Every day at market close, the Dogs of the Dow website updates a list of the "50 largest companies by market cap (available on major U.S. stock exchanges)". The website defines market cap as "the total market value of the company's outstanding shares. To calculate a company's market cap, you simply take the current stock price and multiply it by the total number of shares outstanding."

Dogs of the Index Metrics Cull Out Current Bargains

For this article, the May 25 list of 50 top market cap companies was 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, survey, or list 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 of the 50 top market cap equities listed below were ranked by yields calculated as of May 25 to determine the Top Market Cap Dividend Dogs. Bracketed numbers after the stock name indicate the 1-50 market cap rank earned.

Market cap top ten stocks showing the biggest yields as of May 25 included equities representing five of nine market sectors. The top yielding stock as revealed by Yahoo Finance data, was one of four in the basic materials sector, Vale S.A. (NYSE:VALE). The other three basic materials firms were: Total (NYSE:TOT), Royal Dutch Shell (NYSE:RDS.B), and BP plc (NYSE:BP). The balance of the top ten included: one financial, Fifth Third Bancorp (NASDAQ:FITB); one consumer goods firm, British American Tobacco (BTI); two technology, AT&T (NYSE:T), and Verizon Communications (NYSE:VZ); two health care equities, GlaxoSmithKline (NYSE:GSK), and Sanofi (NYSE:SNY) representing the sectors.

Up and Down Moves for Top Market Cap Dividend Dogs

One firm, Fifth Third Bancorp, stayed at the top of this list by yield for three of the four months surveyed. Come May 25, however, Vale S.A. took the yellow tint at the top of the list.

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.

Bullish upward price moves since April 30 were made by only two of the top ten Market Cap Dividend Dogs: AT&T dialed up its price 2.53% and fellow techie Verizon Communications connected with a 2.96% price gain.

Bearish downward price moves for the same period hit the rest of the top ten Market Cap Dividend Dogs: Vale S.A.'s price plunged 15.18% in price; Fifth Third Bancorp was down 1.77%; Total sank 5.63%; British American Tobacco flaked off 7.46%; Royal Dutch Shell went down 9.39%; BP plc retrenched 6.35%; GlaxoSmithKline hemorrhaged 3.9%; Novartis (NYSE:NVS) nodded off 3.96% but left the top ten; Sanofi swooned 9.23% and climbed back into the pack.

Dividend vs. Price Results

Below relative strengths for the top ten Market Cap Dividend Dogs by yield was graphed as of May 25, 2012 and compared to those of the Dow. 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.

Conclusion: Market Cap Dividend Dogs Move From Overbought Toward Neutral in May

A mostly bearish trend shows in the top ten Market Cap Dogs dividend vs. price performance between January and May. Aggregate single share price for the top ten declined 6.76%, while projected dividends from those ten invested at $1k each increased 6.33% for the period. This is a healthy sign as the gap between aggregate single share prices exceeding projected dividends from $1k invested in those ten equities has narrowed.

Meanwhile, the Dow index moved back to near convergence as dividends from $1k invested in the top ten came to within $8 of their aggregate total single share prices in March. Since then, however, the Dow aggregate single share price for the top ten has rallied up 17.56% into May.

As of May 26 Market Cap Dogs showed $137 or 33.9% more dividends (with equally bigger risk) at an $80 or 16.9% higher aggregate single share price than the Dow top ten. A coming summary will soon compare May results for these market cap dogs with two Barron's dog lists derived from Barron's survey of the top 500 firms by sales. Stay tuned.

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

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.