A once per year trading system triggered by yield, called the "Dogs of the Index" can be used to determine the best of the best dividend stocks. The 'dogs' system empowers investors with all the wisdom and knowledge of well-paid wizards of investment and publishing for free, as investors select the highest yielding and lowest priced constituents in a collection of equities built by experts.
Comparing relative strengths of nine stock indices by (1) yield and (2) dividend vs. price gaps using projected annual dividends from $1000 invested in the ten highest yielding stocks in each index, this article reported October results from 3x9 and 1X9+1 Sector indices, the Russell 1000, S&P 500, NYSE International 100, NASDAQ 100, Dow 30, S&P 500 Aristocrats, and JPMorgan Sovereigns indices as of October 26.
This effort was part an ongoing one in response to the question, "which dividend stocks were good, better, best, bad or ugly for June?"
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.
Dog Metrics Selected Ten in Each Index
Two key numbers determined the yields that ranked 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.
Top ten dogs for each index displayed their annual dividends from $1000 invested in the ten highest yielding stocks in the index compared to the aggregate single share prices of the top ten stocks therein created the data points for each of the past six months shown in green for price and blue for dividends.
Previous posts ranked the subject indices by risk in the following order from most risk to least:
3x9 and 1x9+1 Sectors
The 3x9 Sectors Index is composed by ranking the top three dogs from nine sectors by yield to get the ten highest ranking from that pool. Results for selected top yielding dogs from each of nine business sectors along with the best yielding runner-up from any sector as the tenth perfectly diversify a top ten sector index portfolio, named 1x9+1 Sectors Index.
For October, the top ten dividend paying stocks in the 3x9 index represent four sectors: Three from basic materials, Whiting USA Trust (NYSE:WHX), Oxford Resource Partners (OXF), and Whiting USA Trust II (NYSE:WHZ); two from services, RadioShack Corporation (NYSE:RSH), and Box Ships (NYSE:TEU); three from financial, Armour Residential REIT (NYSE:ARR), Apollo Residential Mortgage (NYSE:AMTG), and New York Mortgage Trust (NASDAQ:NYMT); two from technology, City Telecom (H.K.) (CTEL), and Portugal Telecom SGPS (NYSE:PT).
Nine top dogs and top runner-up on the above chart form the October 1x9+1 list: Whiting in basic materials; RadioShack for service; Oxford the basic materials runner-up; Armour in financial; City Telecom (H.K.), technology; Just Energy Group (NYSE:JE), utilities; Pitney Bowes (NYSE:PBI), consumer goods; PDL BioPharma (NASDAQ:PDLI), healthcare; Veolia Environnement (NYSE:VE), industrial goods; Dow Chemical (NYSE:DOW), conglomerates.
Since January the 1x9+1 sector dividend sank 19% as stock prices also decreased 48% under a nullifying trend. Dividends and prices both fell as less expensive stocks with lower dividends ascended to the top.
Russell 1000 Index Stocks
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.
Six of the top ten stocks in this index paying the big dividends through October were financial sector firms: American Capital Agency (NASDAQ:AGNC) led the top five. Four more financials immediately followed: Chimera Investment Corp. (NYSE:CIM); Annaly Capital Mgmt Inc (NYSE:NLY); Hatteras Financial Corp (NYSE:HTS); MFA Financial Inc, (NYSE:MFA); finally, Ares Capital Corp (NASDAQ:ARCC) took the ninth slot. There was one consumer goods firm, Pitney Bowes Inc. (PBI), and one in services, Donnelley R R & Sons Co.(NASDAQ:RRD). Two technology firms completed the top ten: Windstream Corp (NASDAQ:WIN); Frontier Communications (NYSE:FTR).
Since January this index showed mixed signals as dividends dropped 14.7% from $1k invested in each of the top ten stocks while single share prices for those stocks dropped 2%.
NYSE International 100 Stocks
The NYSE states,
The NYSE International100 Index tracks the largest 100 non-U.S. common stocks listed on the New York Stock Exchange. As of year-end 2004, the companies represented have a combined market capitalization (float-adjusted) of $4.3 trillion. Together they represent over one-quarter of the total market capitalization of all common stocks listed on the NYSE.
As of October 26, three of the top ten stocks that showed the biggest dividend yields in this index were technology firms: top dog was France Telecom (FTE); Telef S.A. (NYSE:TEF), second; Nokia Corp. (NYSE:NOK) was fifth. Four basic materials firms were represented: Companhia Siderurgica (NYSE:SID) in third; Total S.A. (NYSE:TOT), eighth; ENI S.p.A.(NYSE:E), ninth; Royal Dutch Shell PLC B (NYSE:RDS.B), tenth. One utility was in the top ten, National Grid PLC (NYSE:NGG), placed fourth. two financial companies placed sixth and seventh, Westpac Banking Corp. (NYSE:WBK), and BCE Inc. (NYSE:BCE).
Since the first of the year the international dogs have followed a bull path. Dividend dropped 9.5% as price bounded up 51%.
Volatility shows, so careful playing with International Dogs.
S&P 500 Stocks
McGraw Hill, publisher of the S&P 500 Index states "Standard & Poor's strives to provide investors who want to make better informed investment decisions with market intelligence in the form of credit ratings, indices, investment research and risk evaluations and solutions." The company states that the "index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities".
Five sectors placed top dogs in this October index. Top dog Pitney Bowes Inc (PBI) was one of three consumer goods firms. The remaining two consumer goods top dogs were: Avon Products (NYSE:AVP), and Reynolds American Inc. (NYSE:RAI). Three technology firms made the top ten: Windstream Corp (WIN), Frontier Communications (FTR), and CenturyLink Inc. (NYSE:CTL). One services firm was listed, Donnelley, R.R. & Sons (RRD) in third place. One basic materials firm was sixth, Cliffs Natural Resources (NYSE:CLF). Two utilities, Exelon Corp. (NYSE:EXC), and Ameren Corp (NYSE:AEE) completed the S&P 500 top dogs.
Since January, this index has been mostly bearish as the dividend from $1k invested in each of the top ten stocks inclined 1.7% while single share price for those stocks declined 8%.
NASDAQ 100 Stocks
The NASDAQ-100 Index includes 100 of the largest domestic and international non-financial securities listed on The Nasdaq Stock Market based on market capitalization. The Index reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain securities of financial companies including investment companies.
Three sectors were represented in the top ten NASDAQ dogs through October per IndexARB.com data. Technology had seven firms showing high forward looking yields in this index. Vodafone (NASDAQ:VOD) from this sector claimed the top spot. Other technology firms in the top ten were: Seagate Technology (NASDAQ:STX); Garmin (NASDAQ:GRMN); Microchip Technology (NASDAQ:MCHP); CA Technologies (NASDAQ:CA); Intel (NASDAQ:INTC); Dell Computer (NASDAQ:DELL). The remaining two NASDAQ high yield sectors for October were healthcare, represented by Warner Chilcott (NASDAQ:WCRX); followed by service firms, Staples (NASDAQ:SPLS), and Paychex (NASDAQ:PAYX), filling out the top ten.
NASDAQ 100 Index dogs showed bear market symptoms since January as projected the dividend total for $1000 invested in the top ten increased 3% while their aggregate total single share price dropped 18%.
S&P 500 Aristocrats Stocks
McGraw Hill, publisher if this index, states:
The S&P 500® Dividend Aristocrats index measures the performance of large cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years.
October Aristocrats featured six of nine business sectors in the top ten by yield. One of three consumer goods firms led the top ten dogs showing the biggest dividend yields. Pitney Bowes Inc. (PBI) led; Leggett & Platt (NYSE:LEG) was third; Kimberly-Clark (NYSE:KMB) placed eighth for the consumer goods contingent. Remaining dogs in the top ten represent five sectors: one technology, AT&T (NYSE:T) in second place; two financials, HCO, Inc. (NYSE:HCP) & Cincinnati Financial (NASDAQ:CINF) in fourth & sixth place; one utility, (NYSE:ED) placed fifth; one basic materials (NYSE:NUE) was seventh; the lone healthcare firm, Johnson & Johnson (NYSE:JNJ) was ninth; service firm, McDonald's Corp. (NYSE:MCD) placed tenth.
Since December 30 2011, S&P 500 Aristocrats became bullish as dividends from $1k invested in each of the top ten dogs dropped .83% while the aggregate single share price for those stocks popped 4% for the period. S&P 500 Aristocrats have finally escaped the bear.
Dow 30 Stocks
CME Group, publisher if this index, stated,
The Dow Jones Industrial Average (DJIA) is a price-weighted index of 30 blue-chip U.S. companies representing nine economic sectors including financial service, technology, retail, entertainment and consumer goods. The leadership position of the component stocks in the DJIA tends to result in an extremely high correlation of the DJIA to broader U.S. indexes, such as the S&P 500 Index providing additional opportunities.
The October Dow featured six of nine business sectors in the top ten by yield. Four technology firms showed the biggest dividend yields according to IndexArb.com: AT&T (T); Verizon (NYSE:VZ); Intel Corp.(INTC); Hewlett-Packard (NYSE:HPQ). Those technology top dogs were followed by three healthcare firms: Merck (NYSE:MRK); Pfizer (NYSE:PFE); Johnson & Johnson (JNJ). One basic materials firm, Dupont (NYSE:DD) was listed sixth; One industrial goods firm, General Electric (NYSE:GE) was included in eighth. Finally, the lone service firm, McDonald's (MCD) rounded out the top ten Dow dogs.
December 30th 2011 marked one time projected dividends from $1000 in each of the top ten Dow dogs exceeded the aggregated single share price of those ten. The March 13 aggregate price came within $8 over dividends. In July dividend exceeded price by $.23 and now October finds aggregated single share price climbing $10 away from projected dividends from $1000 in each of the top ten Dow dogs. Since January dividend was up 1.4% while price was also up 2.6%, a somewhat bullish sign.
JPMorgan New Sovereigns Stocks
July 22, 2011, Thomas Lee, an equity strategist with JPMorgan, published a note titled "Corporates are the New Sovereigns: 22 stocks to own around sovereign default." The Barron's article covering Lee's announcement defined a Sovereign as an entity which can print money or tax at will. Lee's report listed 22 corporate stocks that show less risk of default than the sovereign U.S. government, based on five-year credit spreads, free cash flow yields exceeding bond yields, ratings of overweight by JPMorgan, and showing upside to their target prices.
Ten stocks that showed the biggest yields in October Sovereigns included firms from six of nine business sectors. Two industrial goods firms listed included the top dog, Lockheed Martin Corp. (NYSE:LMT), while Raytheon Inc. (NYSE:RTN) was fourth seeded. Two basic materials firms were, ConocoPhillips (NYSE:COP) second, and Freeport-McMoRan (NYSE:FCX) in fifth place. Two healthcare firms placed, Merck (MRK) in third, and Abbott Laboratories slotted ninth. Two services firms placed sixth and seventh, Norfolk Southern Corp. (NYSE:NSC), and United Parcel Service (NYSE:UPS). Two consumer goods, Pepsico Inc. (NYSE:PEP) eighth, and Coca-Cola (NYSE:KO) in tenth rounded out the top ten new sovereign dogs.
JPMorgan Sovereigns Index constituents reflected bull market symptoms for 2012 as projected dividend totals for $1000 invested in the top ten dropped .7% as their aggregate total single share prices popped up 2% between the first and seventh points graphed.
All Together Now
Each graph below shows monthly points of comparison between annual projected dividends resulting from $10,000 invested as $1,000 each in the top ten high yield stocks (blue points) versus the total prices of one share of each of the ten stocks (green points) by index. Grouped together the graphs display seven periods of comparative gyrations of the nine indices described.
Dog Teams Go for Dividend Dominance
The following graph shows annual dividends projected from $1000 invested in each of ten stocks with the top yields in nine indices. The chart plotted projected yields as of a specific purchase period since December/January. Generally, projected yields increased in the indices when average stock prices fell. However, yield projections were subject to corporate fiscal considerations so yields also plunged when times got tough.
Annual Dividends Forecast from $1k Invested in Each of 10 Top Yielding Stocks in 9 Indices
Relative yield strengths differentiated the indices graphed. The JPMorgan Sovereigns showed the lowest dividend from $1000 invested in each of those ten top stocks with a low trajectory down .69% since January.
The Dow and NASDAQ dividends behaved like a braided cord until April but thereafter separated with the NASDAQ top ten showing a higher aggregate dividend from $1000 invested in each of their ten stocks. The Dow dividend is up 1% since January while the NASDAQ 100 top 10 popped up 3% for the period. Aristocrats dividends dropped .7% since January.
S&P 500 projected dividend popped up 1.7% over that timeframe. NYSE International 100 dividends from $1000 invested in the top ten stocks now show a 9.5% drop between January and October after spiking 23.7% in April.
Russell index dogs projected dividend yields dropped 18.7% in projected dividend between January and April but have steadied at a 14.7% drop as of October.
Projected dividends from top ten 1x9+1 sector dogs have dropped 33.17% between January and July, recovering to a 14.7% drop as of October; 3x9 sector dogs dividends dropped 28.16% between January and July, recovering to 12%.
June Relative Risk For Dogs by Index
A reader request to "add relative financial data on the companies selected" for an early article comparing indices only by annual yield projections has inspired a simple tool to gauge investment risk. The tool is best applied prior to the purchase of any 5 or 10 Dogs of the Index stocks at any point during the year. This information will continue to be reviewed monthly as one step toward Robert Shiller's admonishment to "make conservative preparations for possible bad outcomes."
Divergence from Share Price Ranked Investor Risk by Index
The charts and accompanying graphs below show the October Divergence ranks of the nine indices for investment risk from high to low.
Conclusion: Analysts Forecast Dogs in 8 Indices To Reckon 9% to 65% Net Gains
Charts below for each index show comparative net gains as of October, 2012 and those projected to October, 2013. Historic aggregate single share price of the ten highest yielding stocks created the numbers for 2012. Projections based on aggregate one year analyst mean target prices as reported by Yahoo Finance created the 2013 numbers for each index.
Five dogs from each index were selected as sells based on highest net gain. The hypothetical sale of those stocks added to the projected dividends revealed the total net for each index. Since $10k is the initial investment, the percentage net gain is easy to calculate for each.
The number of analysts contributing to the mean target price estimate for each stock is noted in the last column on the charts. Three to nine analysts is considered optimal for a higher probability projection estimate.
Sectors 1x9+1 Index Analysts See Near 65% Net Gains
Russell 1000 Index Analysts See Near 22% Net Gains
NYSE International 100 Index Analysts See Over 41% Net Gains
S&P 500 Index Analysts See Near 17% Net Gains
S&P 500 Aristocrats Index Analysts See Near 9% Net Gains
NASDAQ 100 Index Analysts See Over 21% Net Gains
DOW 30 Index Analysts See Over 11% Net Gains
JPM New Sovereigns Index Analysts See Over 11% Net Gains
Summary of Index Price Upsides
Top ten dogs for this index component list were graphed below to show relative strengths by price as of October, 2012 and those projected to October, 2013. Historic aggregate single share price of the ten highest yielding stocks created the numbers for 2012. Projections based on aggregate one year analyst mean target prices as reported by Yahoo Finance, created the 2013 numbers for each index.
This became a graph of upside price potential since all the analyst estimates showed positive price gains for each sector ranging from 5.51% for the ten S&P 500 Aristocrat dogs to 30.52% for the ten 1x9+1 Sector dogs.
8 Top Profit Generating Dog Trades
The top profit generating dog trades one year from now were revealed by analysts mean target prices for each of eight sectors. The list below is summarized from Yahoo Finance and IndexArb.com data.
City Telecom (H.K.) netting a 290% price gain in the Sectors index is determined by a mean target price set by 1 analyst.
Companhia Sideurgica in the NYSE 100 International index is projected to net a 222% price gain based on mean target price set by seven analysts.
Warner Chilcott netting a 132% net gain in the NASDAQ 100 index annually was based on a mean target price set by 14 analysts.
Donnelley R R & Sons Co netting a 63% price gain in the Russell 1000 index was based on a mean target price set by four analysts.
Donnelley, R.R. & Sons netting its 63% net gain was also tops in the S&P 500 index as of next October based on a mean target price set by four analysts.
Hewlett-Packard netting a 29% net gain in the Dow index next year was based on a mean target price set by 23 analysts
Freeport-McMoRan netting a 27% annual gain in the JPM Sovereigns index was based on mean target pricing set by 19 analysts.
Nucor Corp. netting a 18% net gain in the S&P 500 Aristocrats index next year was based on a mean target price set by 15 analysts.
Nine indices and their component stocks will have ongoing stories to tell. These graphs, charts, and lists of companies will be updated again for publication periodically.
Disclosure: I am long T, VZ, INTC, CVX, INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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 are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.