This article reports results for the 3x9 Sectors Index as of May 1. It also shows results for selected top yielding stocks from each of nine business sectors along with the best yielding runner-up from any sector as the tenth to perfectly diversify a top ten sector index portfolio, named 1x9+1 Sectors Index.
These two sector indices were analyzed using a once per year trading system triggered by yield, called the "Dogs of the Index" to determine the best of the best dividend stocks.
Upcoming articles in this series report May Dog Metrics applied to seven additional indices: Russell; NYSE International 100; S&P 500; S&P 500 Aristocrats; NASDAQ 100; Dow 30 Industrials; JPMorgan New Sovereigns.
Dogs of the Index Metrics
Two key numbers determined the yields that ranked the 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.
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).
This Dogs of the Index strategy, popularized by Michael B. O'Higgins in the book "Beating The Dow" (HarperCollins, 1991), revealed how low 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.
investment Wisdom from the 3x9 and 1x9+1 Sectors
Listed below are the top twenty-seven 3x9 Sector stocks by yield as of 5/1/12 per Yahoo Finance data. This data was controversial since it reported estimated annual dividends that may or not be paid depending on decisions by individual corporate governing boards.
Dog dividend methodology was applied in new forward tests for May using Dogs of the Index metrics on each of eight major market sectors: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities. This index is derived from data reported in those articles.
The rankings of 1, 2, or 3 for the nine sectors indicate the relative positions of the stocks in each sector as of May 1.
For May, the top ten dividend paying stocks in this index represent four sectors: three from financial; three from basic materials; three from services; one from technology. The top dividend yield slot was claimed by financial firm Armour Residential REIT (NYSE:ARR). The April leader from financials, BBVA Banco Francs S.V (NYSE:BFR), was cast off the list.
Nine top dogs and top runner-up on the above chart form the May 1x9+1 list:
Up and Down Moves by 3x9 and 1x9+1 Sector Stocks
Over the past four months four different firms bubbled to the top of the lists: CPI Paragon Shipping (PRGN); Oxford Resource (OXF); BBVA Banco Francs S.V.; Armour Residential REIT. All were powered to that position by those ever-controversial forward-looking dividend estimates reported courtesy of Yahoo finance and their Morningstar analytic resource.
Color code shows: (Yellow) firms listed in first position at least once between February and May 2012; (Cyan Blue) firms listed in tenth position at least once between February and May 2012; (Magenta) firms listed in nineteenth position at least once between February and May 2012; (Green) firms listed in twenty seventh position at least once between February and May 2012. Duplicates (if any) are depicted in color for highest ranking attained.
The top ten 1x9+1 Sector stocks showing the biggest dividend yields for May were two from the financial sector, Armour Residential REIT, and American Capital Agency (NASDAQ:AGNC); from basic materials, Whiting USA Trust (NYSE:WHX); from services, Diana Containerships (NASDAQ:DCIX); from technology, MIND C.T.I (NASDAQ:MNDO); from utilities, Niska Gas Storage (NYSE:NKA); from industrial goods, Highway Holdings Ltd. (NASDAQ:HIHO); from healthcare, PDL BioPharma (NASDAQ:PDLI); from consumer, Vector Group (NYSE:VGR); from conglomerates, Dow Chemical (NYSE:DOW).
Bullish vertical moves made since April 17 included five of the top ten 3x9 Sector dogs: Armour Residential REIT built up price 3.4%; American Capital Agency grew 2.9%; Whiting USA share price increased 3.5%; Ferrellgas Partners flared up 11.2%; Niska Gas Storage Partners exploded 35.83% to blow out of the top ten; PDL BioPharma held onto its top healthcare dog rank despite growing 1.94% in price.
Bearish moves for the same period were experienced by: Knightsbridge Tankers (VLCCF.PK), which slipped 1.25% in price to become tenth top dog; Highway Holdings Ltd. declined 2.5% to become top industrial goods dog; MIND C.T.I. dropped 1.09% in price and claimed the tenth 3x9 chart slot by yield.
Dividend vs. Price Results for 3x9 and 1x9+1 Sector index Dogs
Below are graphs reporting relative strengths of the top ten 3x9 Sector and 1x9+1 Sector index stocks by yield as of May 1, 2012. Projected annual dividend history from $1,000 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 five months shown in green for price and blue for dividends.
Bulls chased these dogs into May as 3x9 sector dog dividends from $1,000 invested in each of the top ten stocks sank 15.22% while aggregate single share prices of those ten stocks soared 46.12% under that bullish trend. At the same time 1x9+1 sector dog dividends from $1,000 invested in each of the top ten stocks dropped 16.14%% as aggregate single share prices of those ten stocks increased 6.38%, chased by the same bull. Will price gains continue rampant in these sectors during the 2012 summer doldrums? Stay tuned.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.