It happens every month. David Fish publishes his updated Dividend Champions, Dividend Contenders, and Dividend Challenger profiles here on Seeking Alpha. His champions have increased dividends for 25 straight years or more; contenders have increased dividends for 10-24 straight years; challengers have increased dividends for 5-9 straight years.
This article combined the top 10 yielding stocks from each of David's groups, then utilized the dogs of the index strategy to sort the combined index of 30 into a suitable grouping of 10 to trade. Finally, the dog recommendations were matched up with analysts' mean target price estimates to gauge future gains.
This effort was part an ongoing one to respond to the question, "which dividend stocks were good, better, best, bad, or ugly?"
The research was also in keeping with Yale professor Robert Shiller's observation: "People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes." Hence, this article graphically depicts the gyrations.
Dogs Of The Index Metrics Cull Current Bargains
Given the top 10 dividend champions, contenders, and challengers, 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 utilized this ranking system to select portfolios of five or 10 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).
The 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 30 dividend CCC combo stocks listed below were ranked by yields calculated as of July 31.
Dividend CCC Combo Index
(click images to enlarge)
CCC combined index dogs projecting the biggest dividend yields in June and July included firms representing five of nine market sectors. The CCC combo top 10 included: two service firms -- Navios Maritime Partners LP (NYSE:NMM), and StoneMor Partners LP (NYSE:STON); one technology company, Koninklijke KPN N.V. (OTCPK:KKPNY); two consumer goods -- Pitney Bowes Inc. (NYSE:PBI), and Vector Group Ltd. (NYSE:VGR); three financial firms -- Dynex Capital Inc. (NYSE:DX), PennantPark Investment Corp. (NASDAQ:PNNT), and Old Republic International (NYSE:ORI); two basic materials firms -- Natural Resource Partners LP (NYSE:NRP), and Exterran Partners LP (EXLP), representing market sectors.
CCC Combo Dogs Dividend vs. Price Results
The graphs below show relative strengths of the top 10 dividend CCC combo index stocks by yield and price as of July 31, 2012. Six points of historic projected annual dividend history from $1,000 invested in the 10 highest yielding stocks and the total single share prices of those 10 stocks created the patterns shown in green for price and blue for dividends.
Conclusion: CCC Dog Dividends Soar as Price Sinks
The CCC group of top 10 dividend stocks by projected yield since January showed annual dividends from $1,000 invested in each of the 10 stocks, inclining 10.65%. Meanwhile, aggregate single share prices so far this year dropped 51.27%.
The pattern accelerated in June and July as dividends from $1,000 invested in each of the 10 stocks inclined 1.88%. Aggregate single share prices for the period dropped 24.2%. A bear was loose in the CCC combo dog kennel.
Conclusion Two: CCC Combo Dogs Alleged 33.85% Annual Gains
For the coming year, analyst forecasts from Yahoo Finance projected a 19.65% lower dividend from $1,000 invested in each stock within this CCC top 10 dog group, while aggregate single share price for the 10 was projected by analysts to increase by 27.52%.
Likely profit generating Challengers dog trades one year hence by analysts reported on Yahoo Finance were: Koninklijke KPN N.V., netting $465.54 based on mean target price set by one analyst; Natural Resource Partners LP, netting $545.41 based on mean target price set by four analysts; Vector Group Ltd., netting $335.50 based on a mean target price set by one analyst; Exterran Partners LP, netting $320.45 based on a mean target price set by five analysts; Old Republic International, netting $1177.27 as of next August based on a mean target price set by one analyst.
The resulting CCC top 10 dog net for 2013 from dividends and swept price gains was forecast to be 33.86% from $10,000 invested according to analysts' 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 and select a portfolio of five or 10 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 then own 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.
At the end of each month, a summary concludes this series of articles showing results of yield and price for the Dow 30, Russell 50, Dividend Achievers, the Carnevale Power 25 and Super 29 indices, along with David Fish's Champions, Contenders, Challengers, and Composite lists. Stay tuned to 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 (except as noted) are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding or selling same.
Disclosure: I am long T.