Each month David Fish publishes his updated Dividend Champions profile here on Seeking Alpha. David's dividend champion stocks are distinguished as companies that have paid higher dividends for 25 straight years or more.
Dogs of the Index Metrics Cull Out Current Bargains
Given the Dividend Champions, 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 grouping to trade. They optimistically 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 divided champions stocks listed below were ranked by yields calculated as of July 31.
Ten champion dogs that promised the biggest dividend yields in June & July included firms representing five market sectors. The top stock Pitney Bowes (NYSE:PBI) was one of two firms from the consumer sector. The other consumer goods top dog was Leggett & Platt Inc. (NYSE:LEG). The balance of the top ten included: four financial, Old Republic International (NYSE:ORI), Mercury General Corp. (NYSE:MCY), Universal Health Realty Trust (NYSE:UHT), and United Bankshares Inc. (NASDAQ:UBSI); one service, Bowl America Class A (NYSEMKT:BWL.A); two utilities, Vectren Corp. (NYSE:VVC), and Black Hills Corp. (NYSE:BKH); one technology, AT&T Inc. (NYSE:T) representing market sectors.
Dividend vs. Price Results
Relative strengths of the Dividend Champions top ten index stocks by yield were graphed below as of July 31, 2012. Six points 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 patterns shown in green for price and blue for dividends.
Conclusion: Champions Elevate Dividend and Price Since January
The Champions top ten showed a 1.91% aggregate single share price pop over the six data points graphed this year while dividends from $1k invested in each climbed 5.09%. The past months since April were bearish as price fell 4.79% and dividends jumped 7.95%.
Conclusion Too: Champions Dogs Point To 21.49% Annual Net Gain
For the coming year analyst forecasts from Yahoo Finance projected a 9.4% lower dividend from $1k invested in each stock within this Champions top ten dog group while aggregate single share price for the ten was projected by analysts to increase by 4.23%.
Likely profit generating Champions top ten dog trades one year hence from analysts reported by Yahoo Finance were: Pitney Bowes Inc. netting $190.33 based on mean target price set by 3 analysts; Old Republic International netting $1,177.27 based on mean target price set by 1 analyst; Mercury General Corp. netting $170.23 based on mean target price set by 3 analysts; United Bankshares Inc. netting $157.68 based on mean target price set by 5 analysts; Leggett & Platt Inc. netting $207.35 as of next August based on mean target price set by 3 analysts.
The resulting Champions top ten dog net to 2013 from dividends and swept price gains was forecast to be 21.49% from $10k invested according to analyst mean target price estimates.
Possible Next Steps
As stated above, charts and graphs for this index revealed high yielding stocks whose prices increased (or whose dividends decreased) as candidates to be sold off once each year in order to sweep gains and reinvest the seed money into higher yielding stocks in the same index.
At least three investor choices are clear:
(1) Do nothing. Keep checking these high yield opportunities for possible trades in the fourth quarter of the year or after the November elections.
(2) Use the dogs of the index strategy to select a portfolio of five or ten stocks from this index to buy now. Await the results from your investments in these lowest priced, highest yielding stocks and pray that the price of every stock you purchased climbs higher (having locked in a high yield percentage at purchase). One year from now review these selections and sweep gains, reinvesting the seed money into new higher yielding stocks in the same index.
(3) Pick one or two of the above listed stocks as candidates to buy now then hold long term, all the while collecting interest or reinvesting the gains in additional shares through a dividend reinvestment plan.
A monthly summary will soon compare results in yield and price for nine indices reported in this series: Carnevale Power 25; Super 29; Champions; Contenders; Challengers; CCC Composite; Achievers; Russell 50; Dow 30. Stay tuned and follow these intrepid dogs.
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 are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding or selling same.