This article reports results for the 3x9 Sectors Index as of July 2. 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 June 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 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. Investors selected portfolios of five or ten stocks in any one index or sector by yield to trade. They awaited the results from their investments in the lowest priced, highest yielding stocks they selected 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 6/1/12 and 7/2/12 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 July using Dogs of the Index metrics for 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 June 1 or July 2.
For June, the top ten dividend paying stocks in this index represent four sectors: Three from financial, Armour Residential REIT (ARR), Arlington Asset Investment Corporation (AI), and Two Harbors Investment (TWO); three from basic materials, Great Northern Iron Ore (GNI), Enerplus Corporation (ERF), and Whiting USA Trust (WHX); two from technology, Portugal Telecom SGPS (PT), and France Telecom (FTE); two from services, RadioShack Corporation (RSH), and Navios Maritime Partners (NMM).
Nine top dogs and top runner-up on the above chart form the June 1x9+1 list: Whiting in basic materials; Armour in financial; Enerplus the basic materials runner-up; RadioShack for service; France Telecom, technology; Niska Gas (NKA), utilities; Pitney Bowes (PBI), consumer goods; PDL BioPharma (PDLI), healthcare; Veolia Environnement (VE), industrial goods; Dow Chemical (DOW), conglomerates.
For July, the top ten dividend paying stocks in the 3x9 index again represent four sectors: Three from basic materials, Whiting USA Trust II (WHZ), Enerplus Corporation, and Whiting USA Trust; three from financial, Armour Residential REIT, Arlington Asset Investment Corporation, and Apollo Residential Mortgage (AMTG); three from services, RadioShack Corporation, Navios Maritime Partners, and Teekay Tankers (TNK); one from technology, France Telecom.
Nine top dogs and top runner-up on the above chart form the July 1x9+1 list: Whiting II in basic materials; Armour in financial; Enerplus the basic materials runner-up; RadioShack for service; France Telecom, technology; Niska Gas , utilities; Pitney Bowes, consumer goods; PDL BioPharma, healthcare; Veolia Environnement, industrial goods; Dow Chemical, conglomerates.
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 July 2, 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 seven months shown in green for price and blue for dividends.
Since January, the 3x9 sector dividends sank 28.16% as stock prices also decreased 20.31% under a nullifying trend. Dividends and prices both fell as less expensive stocks with lower dividends ascended to the top. From March to July a classic neutral market pattern emerged as aggregate top ten stock prices leveled near $150 while projected dividends from $1k invested in each of the ten 3x9 Sector stayed around $1500.
Since January, the 1x9+1 sector dividends sank 33.17% as stock prices also decreased 31.58% under a nullifying trend. Dividends and prices both fell as less expensive stocks with lower dividends ascended to the top. From May to July, a classic neutral market pattern emerged as aggregate top ten stock prices leveled near $150 while projected dividends from $1k invested in each of the ten 1x9+1 sector stayed around $1170.
Conclusion: Analysts Forecast Gains up to 30.64% as of July 2013
Top ten stocks on the 1x9+1 sector top ten 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 created the 2013 data points green for price and blue for dividends.
For the coming year, Yahoo Finance projected a 15.6% 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 20.07%. Probable profit generating trades one year from now revealed by Yahoo were Enerplus Corporation netting $822.81 based on mean target price set by four analysts, RadioShack Corporation netting $435.96 based on mean target price set by 16 analysts, France Telecom netting $391.50 based on mean target price set by one analyst, Pitney Bowes netting $280.48 based on mean target price set by four analysts, and Veolia Environnement netting $574.51 based on mean target price set by one analyst. The resulting net gain from dividends and swept price gains was calculated at 30.64% from $10k invested according to analyst estimates for 2013.
Two summaries will conclude this series of articles each month showing comparative results of yield and price for all nine indices reported: 3x9 Sector; 1x9+1 Sector; Russell; NYSE International 100; S&P 500; S&P 500 Aristocrats; NASDAQ 100; Dow 30 Industrials; JPMorgan New Sovereigns. Also look for semi-annual updates on how well or whether projected gains for 2013 hold.
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.