Results for the JPMorgan Sovereigns Index as of July 2 are reported in this article. "Dogs of the Index," a once per year trading system triggered by yield is used to determine the most lucrative of these dividend stocks.
Previous articles in this series reported June results from two sector indices, plus the Russell 1000, S&P 500, NYSE International 100, Nasdaq 100, Dow 30, and S&P 500 Aristocrats indices. A monthly summary will follow to compare results in yield and price for all nine indices reported in this series.
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 JPMorgan Sovereigns
Twenty-two JPMorgan Sovereigns Index stocks were listed below by yield as of July 2, 2012 per Yahoo Finance data. This collection came to light on July 22, 2011 when Thomas Lee, an equity strategist with J.P. Morgan, published a note titled "Corporates are the New Sovereigns: 22 stocks to own around sovereign default." A Barron's article covering Lee's announcement defined a Sovereign as an entity which can print money or tax at will. Lee's report listed 22 corporate stocks that show less risk of default than the sovereign U.S. government, based on five-year credit spreads, free cash flow yields exceeding bond yields, ratings of overweight by J.P. Morgan, and showing upside to their target prices.
Top ten stocks that showed the biggest yields in June included firms from six of nine business sectors: two basic materials, ConocoPhillips (COP) on top and Freeport-McMoRan (FCX) in fourth place; three industrial goods, Lockheed Martin Corp. (LMT) in the second place, Raytheon Company (RTN) fifth, and Honeywell International (HON) in the tenth place; two healthcare firms, Merck (MRK) at fourth place and Abbott Laboratories (ABT) slotted sixth; one consumer goods company, PepsiCo Inc. (PEP) in the seventh place; one services, United Parcel Service (UPS) eighth; one conglomerate, United Technologies (UTX) in ninth position.
For the whole 22 JPMorgan Sovereigns dividend payers, four technology companies, three consumer goods, no financial, five services, two basic materials, two industrial, four healthcare, no utility, and two conglomerates represented the nine market sectors.
Dividend vs. Price Results for JPMorgan Sovereigns Index Dogs
Below is a graph of the relative strengths of the top ten JPMorgan Sovereigns Index stocks by yield as of July 2, 2012. Six months of historic 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 creates the data points for each month shown in (green for price and blue for dividends).
Conclusion: JPMorgan Sovereigns Top Dogs Bounce Up in June
JPMorgan Sovereigns Index constituents reflected bull market symptoms for 2012 as projected dividend totals for $1,000 invested in the top ten dropped 1.73% as their aggregate total single share prices popped up 5.48% between the first and sixth points graphed.
The bullish pattern emerged between May and June as JPMorgan Sovereigns Index top ten projected dividends from $1,000 invested in each of the dogs dropped 7.04%, while aggregate single share prices for those stocks bounced up 8.69% for the month.
Conclusion, Part 2: Analysts Forecast July 2013 Net Gains up to 14.17% for JPMorgan Sovereigns Top Dogs
Top ten dogs for this 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 9.58% 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 11.05%.
Likely profit generating JPM Sovereigns dog trades one year hence revealed by analysts reported by Yahoo Finance were: Conoco Phillips netting $128.04 based on mean target price set by 16 analysts; Freeport-McMoRan netting $486.49 based on mean target price set by 19 analysts; United Parcel Service netting $140.76 based on mean target price set by 19 analysts; United Technologies netting $254.92 based on mean target price set by 20 analysts; Honeywell International netting $222.75 as of next July based on mean target price set by 18 analysts.
The resulting top ten JPMorgan Sovereigns dog net gain to 2013 from dividends and swept price gains was forecast to be 14.17% from $10,000 invested, according to analyst mean target price estimates.
Will JPMorgan Sovereigns dog price gains continue into the fall or will they pull back? Look also for periodic updates on how well or whether analyst-projected 14.17% gains for these JPMorgan Sovereigns hold in 2013.
A monthly summary will soon compare results in yield and price for all nine indices reported in this series: 3x9 and 1X9+1 Sector indices, Russell 1000, S&P 500, NYSE International 100, Nasdaq 100, Dow 30, S&P 500 Aristocrats, and JPMorgan Sovereigns.
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.