This end of month installment summarizes a series of articles that compared the relative strengths of nine stock indices by: (1) yield, and (2) dividend vs price gaps, using projected annual dividends from $1,000 invested in the ten highest yielding stocks in each index for May.
The articles in this series reported results from 3x9 and 1X9+1 Sector indices, the Russell 1000, S&P 500, NYSE International 100, NASDAQ 100, Dow 30, S&P 500 Aristocrats, and JPMorgan Sovereigns indices as of June 1-4. This effort was part an ongoing one in response to the question, "Which dividend stocks were good, better, best, bad or ugly for May?"
The research was also in keeping with Yale professor Robert Shiller's observation: "People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes." Hence this article graphically depicts the gyrations.
Dog Metrics Selected Ten in Each Index
Two key numbers determined the yields that ranked 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 high 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
The top ten dogs for each index displayed their annual dividends from $1,000 invested in the ten highest yielding stocks in the index compared to the aggregate single share prices of the top ten stocks therein to produce the summary graphs shown below. Previous posts in March ranked the subject indices by risk in the following order from most risk to least:
3x9 and 1x9+1 Sectors
The top ten 1x9+1 Sector stocks showing the biggest dividend yields for May were two from the financial sector, Armour Residential REIT (NYSE:ARR), 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).
Below are graphs reporting relative strengths of the top ten 3x9 Sector and 1x9+1 Sector index stocks by yield as of June 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.
Click to enlarge
Bulls chased these dogs into May, the 3x9 sector dog dividends from $1k invested in each of the top ten stocks sank 15.22%, as the aggregate single share prices of those ten stocks soared 46.12% under a bullish trend. At the same time, 1x9+1 sector dog dividends from $1k invested in each of the top ten stocks dropped 16.14%%, as the aggregate single share prices of those ten stocks increased 6.38% following the same bullish trend.
Russell 1000 Index Stocks
As of June 1, eight of the top ten stocks in this index paying the big dividends were financial sector firms. Since January, one firm held the top rank for the Russell list, American Capital Agency, despite its 12% January dividend reduction from $5.60 to $5.00 annually. Bullish vertical moves since April 17 were made by only two of the top ten Russell 1000 dogs: Capstead Mortgage (NYSE:CMO) popped 2.42%; Anworth Mortgage Asset (NYSE:ANH) saw shares up 2.31%.
As the bear pounced in May, Russell 1000 components showed projected annual dividends from $1,000 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, however, dividends from $1k invested in each of the top ten stocks declined 14.97%, while single share prices for those stocks inclined 3.86%.
NYSE International 100 Stocks
As of June 1, three of the top ten stocks that showed the biggest dividend yields in this index were technology firms. Top dog Banco Santander S.A. (STD) was one of two financial companies. Three basic material firms were in the top ten along with one healthcare firm and one utility.
Not one of the top ten NYSE International 100 dogs made a bullish upward price move since April 17. However, top dog Banco Santander S.A. managed to stay even at a $6.55 share price.
Despite the massive drop in top ten NYSE International 100 Index top ten dogs individual share prices, the new assembled May team showed a 16.2% bullish drop in projected dividends from $1,000 invested in each along with a .886% rise in aggregate total single share price since April 17.
Between February and May, however, the bear track was evident as dividends for this group increased 10.85%, while the aggregate single share price dropped 15.54%.
Be careful playing with the International Dogs.
S&P 500 Stocks
As of June 1, three of the top ten stocks paying the biggest dividends in this index were technology firms. Frontier Communications (NASDAQ:FTR) topped this list at 9 to 15% yields for eleven months in 2011. It's tops again at 11.36% for May 2012. The remaining seven top dogs include three consumer goods firms, two services, one financial, and one utility.
Bullish upward price moves since April 17 were made by four of the top ten S&P 500 dogs from April: Pepco Holdings Inc (NYSE:POM) stock price charged up 3.72%; AT&T Inc (NYSE:T) shares popped 9.74%; Health Care REIT (NYSE:HCN) price rose 0738% last month to propel its escape from the top ten kennel.
The bulls once held sway between February and April as S&P 500 dividends from $1k invested in each top ten stock dropped 10.46%, while the aggregate single share price of those shares increased 6.32%. In the past month, however, when the bear growled, dividends from $1k invested in each of the top ten S&P stocks by yield grew 16.67%, while the aggregate single share price for those stocks declined 29.9%.
NASDAQ 100 Stocks
Seven of the top ten stocks showing the highest forward looking yields in this index were technology firms. Vodafone (NASDAQ:VOD) from this sector claimed the top spot as of November last year, throwing 5% to 8% yields. On June 1, Vodafone was still on top at 6.95%. The remaining three firms for May consisted of two consumer goods firms and one service outfit filling out the top ten.
Bullish upward price moves since April 17 were made by not one of the top ten NASDAQ 100 dogs.
Hints of a earlier bull market showed in the NASDAQ 100 over the first three data points graphed. Dividends from $1k invested in each of the top ten dogs decreased 7.53% as aggregate single share price for those ten jumped up 25.68% between January and March.
However, NASDAQ 100 Index dogs reflected bear market symptoms for April and May as projected dividend totals for $1,000 invested in the top ten increased 15.6%, while their aggregate total single share prices dropped 24.02% over the past two months.
S&P 500 Aristocrats Stocks
Consumer goods firms constituted three of the top ten stocks paying the biggest dividends on the S&P 500 Aristocrats as of June 4. Pitney Bowes (NYSE:PBI) from that sector is top dog in this index.
The remaining dogs in the top ten represent six sectors: one technology; one basic materials, two financials; one utility; one healthcare; one service.
Bullish upward price moves since April 17 were made by five present and former ten top Aristocrat index dogs: AT&T Inc. showed a 11.06% price jump; HCP Inc. (NYSE:HCP) marked a .153% increase; Cincinnati Financial Co. (NASDAQ:CINF) charted a 1.77% pop; Consolidated Edison (NYSE:ED) sparked a 4.64% price incline; Kimberly Clark (NYSE:KMB) put up a 4.23% price improvement.
S&P 500 Aristocrats Index constituents continued to be chased by a bear as projected dividend totals for $1000 invested in the top ten increased 8.29% as their aggregate total single share prices dropped 15.21% over the months graphed.
The above graph turned more bearish between April 17 and June 4 as S&P 500 Aristocrats top ten dividends from $1k invested in each of the dogs jumped 7.41%, while single share prices for those stocks sagged 1.59% for the month.
Two technology firms showing the biggest dividend yields on the Dow as of June 1 were: (1) AT&T; (2) Verizon (NYSE:VZ). The rest of the Dow 10 dogs include three healthcare, one industrial, one financial, two basic materials, and one consumer firm.
Bullish upward price moves since April 17 were made by only two of the top ten Dow 30 dogs: AT&T Inc. dialed up a 10.24% share price increase; Verizon Communications connected with a 8.95% price bump.
Dow 30 Index dogs reflected bear market symptoms since February as projected dividend totals for $1000 invested in the top ten increased 3.833% while their aggregate total single share prices dropped 1.27%.
December 30th 2011 marked the last time projected dividends from $1000 in each of the top ten Dow dogs exceeded the aggregated single share price of those ten. March 13 aggregate price came within $8 over dividends. Until dividends exceed price by this standard the Dow will show as overbought. A great bearish drop in aggregate single share price accompanied by a sizeable increase in projected dividends from $1k invested in the top ten Dow dogs is long overdue.
JPMorgan Sovereign Stocks
The top ten stocks that showed the biggest yields in April included firms from five of nine business sectors: two industrial goods; two healthcare firms; two basic materials; two services; two consumer goods. Lockheed Martin Corp. (NYSE:LMT) an industrial was at the top of this list from January to April until ConocoPhillips (NYSE:COP) in basic materials took over this month.
Bullish upward price moves since April 19 were made by just two of the top ten JPM Sovereign dogs: Abbott Laboratories (NYSE:ABT) scripted a 1.87% price gain; Pepsico (NYSE:PEP) poured out a 2.01% gain in share price.
JPMorgan Sovereigns Index constituents reflected bear market symptoms as projected dividend totals for $1,000 invested in the top ten popped 5.72%, as their aggregate total single share prices dropped 4.65% between the first and fifth points graphed.
The bearish pattern accelerated between April and May as JPMorgan Sovereigns Index top ten projected dividends from $1k invested in each of the dogs jumped 14.11%, while aggregate single share prices for those stocks sagged 11.06% for the month.
All Together Now
Each graph below shows monthly points of comparison between annual projected dividends resulting from $10,000 invested as $1,000 each in the top ten high yield stocks (blue points) versus the total prices of one share of each of the ten stocks (green points) by index. Grouped together the graphs display five months of comparative gyrations of the nine indices described.
Dog Teams Go for Dividend Dominance
The following graph shows annual dividends projected from $1,000 invested in each of ten stocks with the top yields in nine indices. The chart plotted projected yields as of a specific purchase date each month since January. Generally, projected yields increased in the indices when average stock prices fell. However, yield projections were subject to corporate fiscal considerations so have also plunged a lot when times were tough.
Thus, relative yield strengths differentiating the indices were graphed. The JPMorgan Sovereigns showed the lowest yield with a low trajectory swing up 5.72% over five data points since January. The Dow and NASDAQ dividends behaved like a braided cord until February and thereafter tracked each other within $5 from $1,000 invested in each of their ten stocks.
The Dow yield projections popped 6.75% since January, while the NASDAQ 100 top ten popped up 6.9% for the period. Aristocrats dividends rose 8.29% for the period. S&P 500 projected dividends jumped 8.6% since January. NYSE International 100 dividends from $1000 invested in the top ten stocks rose 3.63% between January and May showing a 23.7% spike in April. Russell index dogs projected dividend yields dropped 14.9% in projected yield for the period. Projected dividends from top ten 1x9+1 sector dogs dropped 33.53%; 3x9 sector dogs dividends dropped 32.98%.
Annual Dividends Forecast from $1k Invested in Each of 10 Top Yielding Stocks in 9 Indices
April Relative Risk For Dogs by Index
A reader request to "add relative financial data on the companies selected" for an early article comparing indices only by annual yield projections has inspired a simple tool to gauge investment risk. The tool is best applied prior to the purchase of any 5 or 10 Dogs of the Index stocks at any point during the year. This information will continue to be reviewed monthly as one step toward Robert Schiller's admonishment to "make conservative preparations for possible bad outcomes."
Divergence from Share Price Ranked Investor Risk by Index
The charts and accompanying graphs below compared the April vs May divergence of the nine indices to rank investment risk from high to low.
These nine indices and their component stocks will have ongoing stories to tell. These graphs, charts, and lists of companies will be updated again for publication each month.
Disclaimer: This article is for informational and educational purposes only and should 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.