This article reports results for the Russell 1000 Index as of June 1. This index was 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.
A previous article in this series reported three top dogs in nine sectors creating a 3x9 sector index and 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. Upcoming articles in this series report May Dog Metrics applied to six additional indices: 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 to rank 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 Russell 1000
Listed below are the top thirty Russell 1000 stocks by yield as of 6/1/12 per Yahoo Finance data. Russell Investments states that the Russell 1000 Index offers investors access to the extensive large-cap segment of the U.S. equity universe, representing approximately 90% of the U.S. market.
As of June 1, eight of the top ten stocks in this index paying the big dividends were financial sector firms. Of the top thirty Russell 1000 dividend payers, just six were non-financial companies. Three services, two consumer goods, one technology, and one industrial are the non financial sectors represented. This index is updated annually and the next revision will be reported in late June.
Up and Down with Russell 1000 Index Dogs
Since October 2011, one firm held the top rank yellow tint of the Russell list, American Capital Agency (AGNC), despite its 12% January dividend reduction from $5.60 to $5.00 annually.
Color code shows: (Yellow) firms listed in first position at least once between February and June 2012; (Cyan Blue) firms listed in tenth position at least once between February and June 2012; (Magenta) firms listed in twentieth position at least once between February and June 2012; (Green) firms listed in thirtieth position at least once between February and June 2012. Duplicates are depicted in color for highest ranking attained.
Bearish moves for the same period were rempant among the April and May top ten: Top stock American Capital Agency share price decreased .066%; Hatteras Financial (HTS) saw a 1.64% price slump; Blackrock Kelso Capital Corporation (BKCC) shares slouched 2.1%; Apollo Investment (AINV) shares dropped .683%; Teekay Tanker (TNK) shares were swamped 31.72%; Vector Group (VGR) share price flaked off 4.65%; New York Community Bank (NYB) share price plunged 13.55%; Mack Cali Realty Corp. (CLI) price descended 20.74% to capture the tenth slot by yield; Alaska Communications (ALSK) share price slammed down 23.2% while its annual dividend estimate was cut 50% dropping it from eighth place to twenty-first by yield.
Dividend vs. Price Results for Russell 1000 Dogs
Below is a graph of the relative strengths of the top ten Russell 1000 index stocks by yield as of June 1, 2012. Projected annual dividend history from $1000 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.
Conclusion: A Bear Pounced in May
Russell 1000 components showed projected annual dividends from $1000 invested in the top ten Russell stocks rising 3.7% as their aggregate total single share price also rose 3.94% on the strength of a double digit priced dog entering the top ten, replacing a single digit dog in the month past. Since January, dividends from $1k invested in each of the top ten stocks declined 14.97% while single share prices for those stocks inclined 3.86%.
Will the Russell 1000 bear continue to rip price gains through June or will the bull be back? 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.