Achievers Dogs Portend 24% Annual Net Gains

by: Fredrik Arnold

In February, The Dividend Achievers of 2012 announced annual additions and deletions to the Broad Dividend Achievers Index which is comprised of companies:

  1. Incorporated in the United States or its territories
  2. Trade on the NYSE, NASDAQ or AMEX
  3. Have increased dividends 10 or more consecutive years
  4. Have an average daily trading volume $500,000 per day

These companies are said to be weighted based on their market capitalization as of the last trading date in December. No constituent may weigh more than 5% of the index on the annual reconstitution date or quarterly rebalance date. The index was reconstituted on the last trading date in January.

For this article, the Dividend Achievers 50 Index was chosen from here. The selected subset below was constituted from "the 50 U.S. companies with the highest current dividend yield as of the last trading date in December." The selected list was then updated with price data as of 1/30; 2/27; 3/29; 4/27; 6/1; 8/1/2012 from historical prices available on Yahoo Finance.

Dogs of the Index Metrics Cull Out Current Bargains

Given the Dividend Achievers 50 Index, this article used two key numbers to rank those stocks: (1) stock price; (2) annual dividend. Dividing the annual dividend by the price declared the percentage yield by which each dog stock was ranked.

Historically, investors have utilized this ranking system to select portfolios of five or ten stocks in any one index or sector 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 Dividend AchieversTM 50 Index listed below were ranked by yields calculated as of August 1.

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Dividend Achievers top ten stocks paying the biggest dividends as of August 1 included equities representing four market sectors. The top stock as revealed by Yahoo Finance data, was one of four in the consumer goods sector, Pitney Bowes Inc (NYSE:PBI), followed by Vector Group LTD (NYSE:VGR). The other two consumer goods firms were Avon Products Inc (NYSE:AVP), and Leggett & Platt Inc (NYSE:LEG). The balance of the top ten included: four financial firms, Mercury General Corp (NYSE:MCY), Peoples United Financial (NASDAQ:PBCT), United Bancshares Inc. (NASDAQ:UBSI), and Old Republic International (NYSE:ORI); one utility, PPL Corporation (NYSE:PPL); one basic materials firm, ConocoPhillips (NYSE:COP) representing the sectors.

Dividend vs. Price Results

Relative strengths for the Dividend Achievers top ten index stocks by yield was graphed as of August 1, 2012. Four 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: Bears Augmented

This Dividend Achievers collection of top ten dividend payers displayed bearish action for the six points surveyed. Dividends from $1k invested in the top ten rose 11.52% away from aggregate total single share prices which dropped .0425% between January and May.

This past period, however, the Achiever top ten bearish action was modified by COP joining the list with a 33% higher share price and 50% higher dividend than the T stock it replaced. So projected annual dividends from $1k invested in each stock elevated 1.5% while the aggregate single share price of those stocks rose 5.74%. August dividends from $1k invested in each Achiever dog exceed the aggregate single share stock price for those stocks by over $446 or 192.6%.

Conclusion 2: Analysts Forecast July 2013 Net Gains of 24.13% for Dividend Achievers Dogs

Top ten dogs for this index component list were graphed below to show relative strengths by dividend and price as of August 1, 2012 and those projected to August 1, 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.

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For the coming year, Yahoo Finance projected a 17.29% lower dividend from $1k invested in each stock within this Achiever dog group while aggregate single share price for the ten was projected by analysts to increase by 15.86%.

Likely profit generating Achiever dog trades one year hence revealed by analysts as reported by Yahoo Finance were: Pitney Bowes Inc netting $200.38 based on mean target price set by 4 analysts; Vector Group Ltd netting $346.71 based on mean target price set by 1 analyst; Old Republic Int'l netting $1142.39 based on mean target price set by 1 analyst; Avon Products netting $241.44 based on mean target price set by 13 analysts; Leggett & Platt Inc netting $206.82 as of next August based on mean target price set by 3 analysts.

The resulting top ten Achiever dog net gain to 2013 from dividends and swept price gains was forecast to be 24.13% from $10k invested according to analyst mean target price estimates.

At the end of each month, a summary concludes this series of articles by showing results of yield and price for these Dividend Achievers, the Carnevale Power 25 and Super 29 indexes, along with David Fish's Champions, Contenders, Challengers, and Composite lists. Stay tuned and follow these intrepid dogs.

Disclosure: I am long T.

Disclaimer: This article is for informational and educational purposes only and shall 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.