This article reports results for the Russell 1000 Index as of October 5. This index was analyzed using a once per year trading system triggered by yield, called the "Dogs of the Index" to determine the best of the best of these Russell dividend stocks.
The previous article in this series reported results as of July 2 showing 25.52% anticipated annual net gains to July 2013. Since then, the top ten Russell dogs projected net gain has shrunk from 25.52% to 18.25% the difference is explained below.
Dogs of the Index Metrics
Two key numbers determined the yields to rank the stocks in each index: (1) stock price; (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 low 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.
Investment wisdom from the Russell 1000
Listed below are the top thirty Russell 1000 stocks by yield as of 10/5/12 per Yahoo Finance data. Russell Investments states that the Russell 1000 Index offers investors access to the extensive large-cap segment of the U.S. equity universe, representing approximately 90% of the U.S. market.
The Russell 1000 index is updated annually and the latest June revision is reported here using October prices.
Six of the top ten stocks in this index projecting the big dividend yields as of October 5 were financial sector firms: American Capital Agency (AGNC) led the top five. Three more financials immediately followed: Chimera Investment Corp. (CIM); Annaly Capital Management Inc. (NLY); Hatteras Financial Corp (HTS). There was one consumer goods firm, Pitney Bowes Inc (PBI), and one service firm, Donnelley RR & Sons (RRD). Two more financials were MFA Financial Inc, (MFA) in seventh, and Ares Capital Corp (ARCC) in the ninth slot. Two technology firms completed the top ten: Windstream Corp (WIN); Frontier Communications (FTR).
Of the top thirty Russell 1000 dividend payers, thirteen represented non-financial companies. Five consumer goods, four technology, two services, one basic materials, and one utility composed five non-financial sectors represented in the October Russell list revision.
Dividend vs. Price Results for Russell 1000 Dogs
Below is a graph of the relative strength of the top ten Russell 1000 index stocks by yield as of October 5, 2012. Projected annual dividend history from $1000 invested in the ten highest yielding stocks each month and the total single share prices of those ten stocks created the data points for each of the past five months shown in green for price and blue for dividends.
Conclusion: Russell Dogs Price Declined Since July
April to July, Russell 1000 components showed projected annual dividend from $1000 invested in the top ten Russell stocks rose 7.3% as their aggregate single share price also rose 19%. Some of the increase happened on the strength of double digit priced dogs entering the top ten replacing single digit dogs in the June revision. Since July the aggregate single share price for top ten Russell dogs declined 8%. However the dividend from $1k invested in each of the top ten shows a bullish turn as it declined 7.7%.
Conclusion Too: Analysts Forecast October Gains at 18.25% vs. 25.52% in July 2013 for Russell Dogs
Top ten dogs for the Russell 1000 components list were graphed below to show relative strength by dividend and price as of October 5, 2012 and those projected to October 5, 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.
For the coming year Yahoo Finance projected a 4.9% lower dividend from $1k invested in each stock within this group while aggregate single share price for the ten was projected by analysts to increase by 7.4%.
Six highlighted probable profit generating trades one year from now revealed by Yahoo were:
- Pitney Bowes Inc. netting $210.99 in October vs. $389.50 in July based on mean target price set by 4 analysts;
- Frontier Communications netting $135.14 in October vs. $407.42 in July based on mean target price set by 14 analysts;
- Windstream Corp netting $128.48 in October vs. $279.09 in July based on mean target price set by 13 analysts;
- Ares Capital Corp $104.57 in October vs. netting $130.88 in July based on mean target price set by 14 analysts;
- Donnelley RR & Sons netting $580,36 in October based on mean target price set by 4 analysts vs. (Sara Lee) Hillshire Brands (HSH) netting $671.93 as of next July based on mean target price set by 8 analysts.
- Hatteras Financial netting $166.12 in October based on mean target price set by 4 analysts vs. an interest only gain of $123.08 in July helped shore up the October percentage.
The resulting October net gain from dividends and swept price gains were $18.25% vs. July's 25.52% from $10k invested according to analyst estimates.
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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.