According to Russell Investors, the publishers of the subject index for this article, "the Russell Top 50® Index measures the performance of the largest companies in the Russell 3000® Index. It includes approximately 50 of the largest securities based on a combination of their market cap and current index membership, and represents approximately 40% of the total market capitalization of the Russell 3000. "
Charts below for the Russell 50 Index reveal high yielding stocks whose prices increased (or whose dividends decreased) as candidates to be sold off once each year to sweep gains and reinvest the seed money into higher yielding stocks in the same index.
Two key metrics determined the yields to rank the Russell 50 dog stocks: (1) stock price; (2) annual projected dividend. Dividing the annual dividend by the price of the stock declared the percentage yield by which each dog stock was ranked. Thus, the investor was able to follow, trade, and await the results from an investment in the lowest priced, highest yielding 10 stocks in the index.
Russell Top 50 Investment Empowerment
Listed below are the top 30 Russell 50 stocks by yield as of 8/1/12, per Yahoo Finance data. Russell Investments states: "The Russell Top 50 Index is constructed to provide a comprehensive unbiased and stable barometer of the largest U.S. companies. The Index is completely reconstituted annually to ensure new and growing equities are reflected."
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As of August 1, none of the top 10 stocks in this index were financial sector firms. Of the top 10 Russell 50 stocks by yield, one basic materials firm -- ConocoPhillips (NYSE:COP) -- led the pack. Three were technology firms -- AT&T (NYSE:T), Verizon Communications (NYSE:VZ), and Intel Corporation (NASDAQ:INTC). The rest of the top ten Russell 50 pack included: three consumer goods firms -- Altria Group (NYSE:MO), Procter & Gamble (NYSE:PG), and Phillip Morris International (NYSE:PM); three healthcare -- Merck & Co. Inc. (NYSE:MRK); Pfizer Inc. (NYSE:PFE), and Johnson & Johnson (NYSE:JNJ). Four of nine sectors were represented.
Dividend Vs. Price Results
Six months 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 data points for each month, shown in green for price and blue for dividends.
Conclusion: Bully For The Russell 50
The Russell 50 top 10 aggregate single share prices moved up and away from annual projected dividends from $1,000 invested in each stock since January. This pattern of prices exceeding dividends reveals the overbought condition for this index. This pattern is shared by the safest indexes tracked in these dog investigations. Still, the pattern is very bullish.
Russell 50 projected dividend totals for $1,000 invested in the top 10 dropped dramatically away from their aggregate total single share prices by 8.93% since January. Meanwhile, prices climbed 10.58% for the period. Will price gains continue to be rampant on the Russell 50 come Fall? Stay tuned.
Conclusion 2: Russell 50 Dogs Predict Safe 7.59% Net Gains Come 2013
For the coming year, Yahoo Finance projected a 3.69% lower dividend from $1,000 invested in each stock within this Russell 50 dog group, while aggregate single share price for the 10 was projected by analysts to increase by 4.25%.
Likely profit generating Russell 50 dog trades one year hence revealed by analysts as reported by Yahoo Finance were:
- ConocoPhillips, netting $200.38 based on mean target price set by 16 analysts;
- Pfizer Inc., netting $117.01 based on mean target price set by 16 analysts;
- Johnson & Johnson, netting $94.44 based on mean target price set by 15 analysts;
- Procter & Gamble Co., netting $73.27 based on mean target price set by 15 analysts;
- Intel Corp., netting $127.71 as of next August based on mean target price set by 40 analysts.
The resulting top 10 Russell 50 dog net gain to 2013 from dividends and swept price gains was forecast to be 7.59% from $10,000 invested, according to analysts' mean target price estimates.
Available 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 10 stocks from this index to buy now. Await the results from your investments in these lowest priced, highest yielding and safe 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; and Dow 30. Stay tuned and follow these intrepid dogs. Check out the comparative risks, rewards, and analyst recommendations from these indices in the summary article to be titled: "Dividend Dog Indices Gyrate."
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.