This article reports results for the NASDAQ 100 Index as of July 2 using "Dogs of the Index," a once per year trading system triggered by yield, to determine the best of these dividend stocks.
Previous articles in this series reported June results from two sector-based indices, plus the Russell 1000, S&P 500, and NYSE International 100 indices. Upcoming articles will report on three additional indices: S&P 500 Aristocrats, Dow 30 Industrials, and JPMorgan New Sovereigns.
Dogs of the Index Metrics
Two key numbers determined the yields that ranked stocks in each index: (1) stock price, and (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.
Investor Empowerment From the NASDAQ 100
Listed below are the top 30 NASDAQ 100 Index stocks by yield as of 7/2/12 per IndexARB.com data. NASDAQ states, "The NASDAQ-100 Index includes 100 of the largest domestic and international non-financial securities listed on The Nasdaq Stock Market based on market capitalization. The Index reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain securities of financial companies including investment companies."
Three sectors were represented in the top ten NASDAQ stocks in June. Technology had six firms showing high forward-looking yields in this index. Vodafone (NASDAQ:VOD) from this sector claimed the top spot. Other technology firms in the top ten were: Garmin (NASDAQ:GRMN); Seagate Technology (NASDAQ:STX); Microchip Technology (NASDAQ:MCHP); CA Technologies (NASDAQ:CA); Maxim Integrated Products (NASDAQ:MXIM). The remaining two NASDAQ high-yield sectors for June were consumer goods, represented by PACCAR Inc. (NASDAQ:PCAR) and Mattel (NASDAQ:MAT); followed by service composed of Paychex (NASDAQ:PAYX) and Staples (NASDAQ:SPLS) filling out the top ten.
Dividend vs. Price Results for NASDAQ 100 Dogs
Relative strengths of the top ten NASDAQ 100 Index stocks by yield was graphed 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).
Conclusion: A Bear Bumbled into May; A Bull Bellowed in June
Hints of a earlier bull market showed in the NASDAQ 100 over the first three data points graphed. Dividends from $1,000 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 showed bear market symptoms through 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%.
Come June, a bull bellow is evidenced as dividends from $1,000 invested in each of the top ten dogs decreased 4.55% while aggregate single share price for those ten jumped up 5.8%
Conclusion, Part 2: Analysts Forecast July 2013 Gains up to 14.87% for NASDAQ 100 Dogs
Top ten dogs for the NASDAQ 100 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 $1,000 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 $1,000 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 13.14% lower dividend from $1,000 invested in each stock within this group, while aggregate single share price for the ten was projected by analysts to increase by 15.61%.
Probable profit generating trades one year from now revealed by analysts reported by Yahoo Finance were: Vodafone netting $234.51 based on mean target price set by four analysts; Garmin netting $324.82 based on mean target price set by nine analysts; PACCAR Inc. netting $274.70 based on mean target price set by 15 analysts; Maxim Integrated Products netting $504.38 based on mean target price set by 25 analysts; Staples, Inc. netting $235.76 as of next July based on mean target price set by 16 analysts. The resulting top ten NASDAQ 100 net gain to 2013 from dividends and swept price gains was 14.87% from $10,000 invested according to analyst estimates.
Will NASDAQ 100 Index dog price gains continue through the summer or will they pull back? Look also for periodic updates on how well or whether projected near 15% gains for 2013 hold.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.