This article reports results for the S&P 500 Index as of July 2 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.
Previous articles in this series reported results from two sector indices and the Russell 1000 index. Upcoming articles report June dog metrics applied to five additional indices: NYSE International 100; 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.
Investor Empowerment from the S&P 500
Listed below are the top thirty S&P 500 stocks by yield as of 7/2/12 per Yahoo Finance data. McGraw Hill, publisher of the Index states "Standard & Poor's strives to provide investors who want to make better informed investment decisions with market intelligence in the form of credit ratings, indices, investment research and risk evaluations and solutions." The company states that the "index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities".
As of July 2, five sectors placed top dogs in this index. Four of the top ten stocks paying the biggest dividends in this index were consumer goods firms. Pitney Bowes Inc (PBI) topped this list at 11.13% for June 2012. The remaining four consumer goods top dogs are: Avon Products (AVP), Leggett & Platt (LEG), and Reynolds American Inc. (RAI). Three technology firms made the top ten: Frontier Communications (FTR), Windstream Corp (WIN), and CenturyLink Inc. (CTL). One services firm was listed, Donnelley, R.R. & Sons (RRD). One financial made the yield list, People's United Financial Inc. (PBCT). One utility, Pepco Holdings Inc. (POM) completed the S&P 500 top dogs.
June Dividend vs. Price Results for S&P 500 Index Top 10
Below is a graph of the relative strengths of the top ten S&P 500 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 six months shown in green for price and blue for dividends.
Conclusion: A Bull Charged in June
The bulls last 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%. They returned in June as dividends from $1k invested in each of the top ten S&P stocks by yield dropped 9.51% while the aggregate single share price for those stocks popped 18.5%.
Since January however this index has been mostly bearish as dividends from $1k invested in each of the top ten stocks declined 1.74% while single share prices for those stocks also declined 24.33%.
Conclusion Too: Analysts Forecast July 2013 Gains up to 21.93% for S&P 500 Index Dogs
Top ten dogs for the S&P 500 index component list were graphed below to show relative strengths by dividend and price as of July 2, 2012 and those projected to July 2, 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 16.8% 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 12.6%.
Probable profit generating trades one year from now revealed by Yahoo were Pitney Bowes Inc. netting $389.50 based on mean target price set by 4 analysts, Frontier Communications netting $403.59 based on mean target price set by 14 analysts, Windstream Corp netting $290.98 based on mean target price set by 13 analysts, Donnelley, R.R. & Sons netting $521.63 based on mean target price set by 5 analysts, and Leggett & Platt netting $297.74 as of next July based on mean target price set by 3 analysts. The resulting net gain from dividends and swept price gains was 21.93% from $10k invested according to analyst estimates.
Will the S&P 500 dog stock price gains continue through the summer or will they pull back? Stay tuned also for periodic 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.