Barron's Top 10 U.S. Sales Dogs Target 23.68% Net Gains To 2013

by: Fredrik Arnold

Barron's published its annual list of America's 500 top companies by sales in May. 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, 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

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 for this article.

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 best by sales dogs listed below were ranked by dividend yields calculated as of July 10. Bracketed numbers after the stock name indicate the sales rank earned in the Barron's survey.

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Barron's best sales dogs top ten stocks showing the biggest yields as of July 10 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); two industrial goods producers, Eaton (NYSE:ETN) and Emerson Electric (NYSE:EMR); one consumer goods firm, Autoliv (NYSE:ALV) representing the sectors.

Dividend vs. Price Results

Below relative strengths for Barron's best sales dogs stocks by yield was graphed as of July 10, 2012. Seven 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: Overbought Barron's Best By Sales Dogs Battle Bear

The Barron's best sales dogs list of ten stocks gap between aggregate single share prices above projected dividends from $1k invested in those ten equities displayed an overbought condition.

A mostly bearish trend shows in the Barron's best sales dogs dividend vs. price performance between January and July. Aggregate single share price for the top ten declined 11.53%, while projected dividends from those ten invested at $1k each increased 8.03 % for the period.

The dramatic drops in price between January and February repeated between May to June was attributable to a $200 priced equity dropping out of the top ten. Conversely the spikes in aggregate price in May and July are attributable to that same $200 stock re-entering the dog pound. A similar spike and drop in price occurred on the Dow chart whenever CVX entered or exited that pound.

The July aggregate single share stock price for the Barron's best sales dogs exceeded the total annual dividend from $1k invested in each of those stocks by over $198 or 45.66%. Compared to the Dow in July, these Barron's best sales dogs showed a 32.21% higher aggregate single share price, producing just 7.96% greater dividends from $1k invested in each than those of the Dow. Knowing the Dow index is overbought, these show just how much more overbought are the Barron's best sales dogs.

Conclusion Too: Analysts Forecast July 2013 Gains at 23.68%

The top ten stocks on the Barron's best sales dog list were graphed below to show relative strengths by dividend and price as of July 10, 2012 and those projected to July 10, 2013.

Historic prices and actual dividends paid from $1000 invested in the ten highest yielding stocks and the aggregate single share prices of those ten stocks created the data points for 2012. Projections based on estimated increases in dividend amounts from $1000 invested in the ten highest yielding stocks and aggregate one year analyst mean target prices, as reported by Yahoo Finance, which created the 2013 data points: green for price and blue for dividends.

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For the coming year, Yahoo Finance projected a 22.43% lower dividend from $1k invested in each stock within this group, while aggregate single share price for the ten was projected by analysts to increase by 27%. Probable profit generating trades revealed by Yahoo for 2013 were Cliffs Natural Resources, netting $788.00, Canadian Imperial Bank, netting $333.22, Eaton Corporation, netting $490.46, Emerson Electric netting $252.56 and Autoliv Inc. netting $286.16 as of next July. The resulting net gain from dividends and swept price gains was 23.68% from $10k invested according to analyst estimates.

Stay tuned also for Barron's best sales dog comparisons to other dog lists, including dividend champions. Look for semi-annual updates on how well or whether projected gains for 2013 hold.

Disclosure: I am long (NYSE:T), (NYSE:VZ), (NYSE:JNJ), (NYSE:CVX).

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 except as noted are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.