"Dogs of the Index," a once per year trading system triggered by yield, 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.
This article was another chapter in the ongoing effort to respond to the question, "what dividend stocks are good, better, best, bad or ugly?" The effort also heeded 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 depicted the gyrations.
Below Dogs of the Index methodology was applied to: (1) Chuck Carnevale's Power 25 Index; (2) Super 29 Index; David Fish's vaunted (3) Champions, (4) Contenders, and (5) Challengers, plus a (6) Composite CCC Index; (7) Dividend AchieversTM 50; (8) Russell 50; All of it based on (9) Dogs of the Dow. (CCCCCCARD = 9 Awesome Indices!)
Dog Metrics Selected Ten in Each Index
Two key metrics determined the yields that ranked those index dog stocks: (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, investors 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).
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) can be sold off once each year to sweep gains and reinvest the seed money into higher yielding stocks in the same index.
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 seven periods 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:
CCC Combined Index
The combination of David Fish's lists encompassing companies paying increasing dividends for 5 consecutive years or more (from here) were ranked by yields calculated as of October 31.
CCC combined index top ten dogs projecting the biggest dividend yields in October included firms representing four of nine market sectors. The CCC combo top ten included two financial firms, Dynex Capital Inc. (NYSE:DX), on top, and PennantPark Investment Corp. (NASDAQ:PNNT), in fourth place. Two services firms, Navios Maritime Partners LP (NYSE:NMM) and StoneMor Partners LP (NYSE:STON) took the second and fifth slots. Two consumer goods companies ranked themselves, third and eighth: Pitney Bowes Inc. (NYSE:PBI); Vector Group Ltd. (NYSE:VGR). Four basic materials firms, Completed the top ten: Natural Resource Partners LP (NYSE:NRP); NuStar Energy LP (NYSE:NS); Exterran Partners LP (NASDAQ:EXLP); Crestwood Midstream Partners LP (NYSE:CMLP).
Since January the CCC combined index top ten dogs dividend from 1K invested in each increased 7% while aggregate single share price for the top ten dropped 34%. Since August, however their dividend dropped 3.4% while price popped 36% displaying the first bullish move of 2012.
David Fish's Challengers list (from here) distinguishes companies that have paid higher dividends for 5 to 9 straight years. Dividend challenger stocks listed below were ranked by yields calculated as of October 31.
Ten challenger dogs posting the biggest dividend yields in October included firms representing three of nine market sectors. The top stock, Dynex Capital Inc., was one of three in the financial sector. The other financial firms were: PennantPark Investment Corp., in third place; Triangle Capital Corp. (NYSE:TCAP), in ninth. Two services took the second and fourth places, Navios Maritime Partners LP, and StoneMor Partners LP. Five basic materials firms completed this index top ten: Natural Resource Partners LP; Exterran Partners LP; Crestwood Midstream Partners LP; Vanguard Natural Resources LLC (NASDAQ:VNR); Boardwalk Pipeline Partners LP (NYSE:BWP).
Since January the CCC combined index top ten dogs dividend from 1K invested in each increased 6% while aggregate single share price for the top ten dropped 21%. Since August, however the dividend dropped 4% while price popped 36% displaying the first bullish move since one recorded in February, 2012 for the Challengers.
Dividend AchieversTM 50
This Index was chosen from here. Indxis the publisher states, "To qualify as Dividend Achiever, a company must have increased its dividend payout each year for the last ten or more consecutive years and meet certain liquidity requirements." The selected subset of ten stocks below was constituted from "the 50 US companies with the highest current dividend yield quarterly rebalanced and effective after the close of trading on October 26, 2012."
Dividend Achievers top ten stocks paying the biggest dividends as of November 6 included equities representing four market sectors. The top two stocks as revealed by Yahoo Finance data were two of four from the consumer goods sector, Pitney Bowes Inc was first, while Vector Group Ltd. followed. The other two consumer goods firms placed fourth and sixth on the list: Avon Products Inc. (NYSE:AVP); Altria Group Inc (NYSE:MO). The best yielding of four financial stocks, Old Republic International (NYSE:ORI) took third on this list. The other three financial stocks fell into fifth, seventh, and eighth places: Mercury General Corp (NYSE:MCY); People's United Financial (NASDAQ:PBCT); United Bankshares Inc. (NASDAQ:UBSI). The lone technology firm, AT&T Inc. (NYSE:T), took ninth place. The lone utility firm, PPL Corporation (NYSE:PPL), was tenth.
Since January the Dividend Achievers 50 index top ten dividend from 1K invested in each has increased 9% while aggregate single share price for the top ten decreased 2%. This translates as an ongoing bear grumble from the Dividend Achievers 50 index top ten dogs.
The Contenders list (from here) contains stocks distinguished by having paid increasing dividends for 10 - 24 years. The top dividend contenders stocks listed below were ranked by yields calculated as of October 31.
Five of nine Yahoo Finance market sectors were represented in the top ten Contenders dog list below. Top dog was one of five basic materials firms, NuStar Energy LP . The other four in basic materials were: Buckeye Partners LP (NYSE:BPL); TC Pipelines LP (NYSE:TCP); Alliance Resource Partners LP (NASDAQ:ARLP); Kinder Morgan Energy Partners (NYSE:KMP).
Second dog, Vector Group Ltd. was the one two from the consumer goods sector. The remaining consumer firm was Avon Products Inc. in tenth.
The balance of the top ten included one utility, Suburban Propane Partners LP (NYSE:SPH) in fourth place; one financial firm, Omega Healthcare Investors (NYSE:OHI) in fifth; one technology firm, Communications Systems Inc. (NASDAQ:JCS) in seventh.
Since January this contenders collection of top ten dogs by yield made a tepid bull run as the dividend from $1k invested in each of the top ten stocks decreased .14% as their aggregate single share price crept up 3.2%. The bull run however peaked in April and has retreated since that point.
David Fish's 10/31/12 Champions list of companies paying increasing dividends for 25 consecutive years or more was sorted by yield as of October 31 to reveal the top ten. Data is sourced from Mr. Fish's drip investing tools.
Ten Champion dogs that promised the biggest dividend yields after October included firms representing five market sectors. The top stock Pitney Bowes was one of two firms in the consumer sector. Altria Group Inc. in fourth place was the other consumer dog.
The balance of the top ten included: five financial, Old Republic International second dog, Mercury General Corp. third, United Bankshares Inc. fifth, Universal Health Realty Trust (NYSE:UHT) eighth, and HCP Inc. tenth; one service, Bowl America Class A (NYSEMKT:BWL.A) was sixth; one technology, AT&T Inc. was seventh; one utility, Vectren Corp. (NYSE:VVC) was ninth representing market sectors.
Bullish upward price moves since August brightened prospects for year end gains. The Champions top ten reliable dividend stocks showed an 8% ten share dividend drop since August while their aggregate single share price soared 12%.
This bullish trend since August has revised the trajectory for the year. since January Champion dividend was down 3% while price inclined 14%.
Carnevale's Super 29 Index
April 2, 2012, Seeking Alpha blogger, respected stock analyst, and creator of Fastgraphs, Chuck Carnevale, published 29 Dividend Champions That Beat The Market, Inflation & 2 Recessions Since 2001. He listed top 29 blue chip dividend growth stocks that: (1) consistently raised dividends for 37 years (or more); (2) were at or below fair market value in 2001; (3) outperformed the S&P 500 on a total return basis.
Carnevale's Super 29 top ten stocks showing the biggest dividend yields as of November 2 included firms representing five market sectors. The top stock as revealed by Yahoo Finance data was the only financial firm in the top ten, United Bankshares Inc. Second dog was the only one in the service sector, Bowl America Class A.
Third dog on the Super 29 list was one of three consumer goods firms: Leggett & Platt Inc. (NYSE:LEG); Diebold Inc. (NYSE:DBD) was sixth; Procter & Gamble Co. (NYSE:PG) the other consumer goods firm was tenth. The balance of the top ten included: three utilities, Consolidated Edison (NYSE:ED) fourth place, Northwest Natural Gas (NYSE:NWN) fifth place, California Water Service (NYSE:CWT), and Connecticut Water Service (NASDAQ:CTWS) in eighth; two basic materials firms, Nucor Corp. (NYSE:NUE) seventh, and RPM International Inc. (NYSE:RPM) ninth completed the top ten Super 29 dogs.
The full list of 29 stocks has four service, two healthcare, six consumer goods, two financial, three basic materials, six industrial goods, four utility, no technology, and one conglomerate representing eight of nine market sectors.
Bearish moves since August showed the dividend from $1k invested in each of these ten dogs rising .09% while aggregate single share price reclined 1.2%.
The Carnevale Super 29 collection of top ten dividend stocks continued to display remarkable calm over the periods graphed since January. Dividends from $1k invested in each of the top ten rose .06%. Meanwhile aggregate single share stock price for these Carnevale Super 29 also increased 12.5% for the period with most of the price increase occurring between January and February.
Carnevale Power 25 Index
Seeking Alpha blogger, respected stock analyst, and creator of Fastgraphs, Chuck Carnevale, published Our 25 Dividend Growth Stocks Are Dirt Cheap in November, 2011. He listed top 25 blue chip dividend growth stocks that: (1) were available at current valuations; (2) were significantly below their historical norms; (3) remained profitable through the great recession of 2008 and 2009.
Carnevale's top ten Power 25 stocks paying the biggest dividends as of November 2, 2012 included firms representing seven market sectors. The top stock as revealed by Yahoo Finance data, was one of two in the service sector, RR Donnelley & Sons (NASDAQ:RRD) was tops, while Sysco Corporation (NYSE:SYY) placed seventh.
The balance of the top ten Power 25 included: two basic materials, Alliance Resource was second dog, and Chevron Corp. (NYSE:CVX) was tenth; one consumer goods firm, Avon Products took third position; two healthcare firms, Novartis AG (NYSE:NVS) came in fourth, and Johnson & Johnson (NYSE:JNJ) slotted ninth; the lone technology firm was Intel Corporation (NASDAQ:INTC) in fifth; one industrial goods firm, Republic Services Inc. (NYSE:RSG) was sixth; one utility, Nextera Energy (NYSE:NEE) was eighth representing market sectors.
The full list of 25 stocks had five service, five healthcare, three consumer goods, one financial, three basic materials, five industrial, one utility, one technology and no conglomerates representing market sectors.
The Carnevale Power 25 collection of top ten dividend dogs by yield since January was neutral as both aggregate single share stock price for the top ten increased 3.2% as did their annual dividend increase 15.6% from $1k invested in each of those stocks.
Since January aggregate single share price surpassed dividend from $1k invested in each of the ten to signal an overbought condition for the index.
Russell Top 50
Top ten Russell 50 stocks by yield are shown as of 11/2/12 per Yahoo Finance data. Russell Investments, the publisher, 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."
As of November 2, none of the top ten stocks in this index were financial sector firms. Five of nine market sectors were represented in the top ten Russell 50 stocks by yield. Top dog was one of two consumer goods firms, Altria Group, the other was Phillip Morris International (NYSE:PM) in sixth place. Four technology firms made the top ten. The number two and three dogs were AT&T followed by Verizon Communications (NYSE:VZ). The remaining tech dogs were number five, Intel Corporation, and number seven, Hewlett-Packard (NYSE:HPQ). The rest of the top ten Russell 50 pack included: one basic materials firm, ConocoPhillips (NYSE:COP) at number four; two healthcare firms, number eight Merck & Co. Inc. (NYSE:MRK), and number nine, Pfizer Inc. (NYSE:PFE). Finally, the lone service dog in the top ten, McDonald's Corporation (NYSE:MCD) fills out the pack representing five of nine sectors.
Russell 50 top ten aggregate single share prices moved rapidly away from annual projected dividends from $1,000 invested in each stock from January until June. This pattern of price exceeding dividends revealed an overbought condition for this index.
Russell 50 projected dividend totals for $1000 invested in the top ten dropped away from aggregate single share price sinking 3% since January. The bulls were running from February to June and Russell dividend yields dropped while stock prices popped 24% in that period. Between June and October, however, the bear crept back as dividend from 1k invested in each of these ten stocks climbed 2% while aggregate single share price for the ten sank 18%.
Dow 30 Index
CME Group, publisher if this index, states, "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."
This kennel of top ten dogs represent five of nine market sectors. Based on dividend projections from indexArb.com, four technology firms showed the biggest dividend yields on the Dow as of October 26: AT&T Inc. was top dog; Verizon was two; Intel Corporation was three; Hewlett-Packard was fourth dog. The rest of the Dow 10 dogs included three healthcare firms, Merck & Company in fifth place, Pfizer Inc. in seventh, and Johnson & Johnson ninth; one industrial, General Electric (NYSE:GE); one financial, JPMorgan Chase (NYSE:JPM); one basic materials firm, Dupont (NYSE:DD) was sixth; one consumer goods firm, Procter & Gamble, representing six of nine market sectors.
Thirty Dow stocks include seven technology companies, three consumer goods, four financial, four services, four basic materials, two industrial, three health care, no utilities, and three conglomerates.
Dow 30 Index dogs reflected roller coaster price swings since January while projected dividend totals for $1000 invested in the top ten increased held fairly steady at the $400 mark. Thus the graph resembles a twin peaked landscape as aggregate single share prices spiked into overbought territory in February and April to June.
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 points of comparative gyrations for the nine indices described.
Dog Teams Vie for Dividend Dominance
The following graph shows annual dividends projected from $1000 invested in each of ten stocks with the top yields in eight indices.
Annual Dividends Forecast from $1k Invested in each of 10 Top Yielding Stocks in the 9 CCCCCCARD Indices.
The chart plotted projected dividend amounts as of a specific purchase date at seven points since January. Four of the nine indices showed dividends dropping in bull market fashion since August. Just the CCC Combo, Challengers, Achievers, and Champions indices showed those decreases in dividends.
Conclusion: Relative Risk For Dogs by Index Shown by Divergence.
Projected dividend vs. price amounts from these eight indices and the Dow over the past seven periods displayed nine distinct divergence levels.
These indices were ranked for risk as of October 31, 2012 in the following manner: (1) Add the single share prices of the top ten stocks on an index list. Then, (2) add the total annual dividend amounts projected from $1000 invested in each of those ten stocks. Finally, (3) compare the resulting two numbers. Lesser divergence between dividend amounts above single share prices revealed the indices with lesser risk. Overvalued stock indices showed negative divergence.
By that baseline standard of divergence, these eight indices and the Dow rank themselves by risk as follows:
Conclusion Too: Analysts Forecast Dogs in CCCCCCARD Indices To Assert 9% to 22% 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.
CCC Combination Index Analysts See Over 22% Net Gains
Challenger Index Analysts See Near 20% Net Gains
Dividend Achievers 50 Index Analysts See Over 15% Net Gains
Contender Index Analysts See Over 18% Net Gains
Champions Index Analysts See Over 13% Net Gains
Carnevale Super 29 Index Analysts See Over 9% Net Gains
Carnevale Power 25 Index Analysts See Near 17% Net Gains
Russell 50 Index Analysts See Over 12% Net Gains
DOW 30 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 4.74% for the ten Dividend Champions dogs to 17.98% for the ten CCC Combo Index dogs.
CCCCCARD 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.
RR Donnelley & Sons in the Carnevale Power 25 Index projected a 62% price gain determined by a mean target price set by 5 analysts.
Communications Systems Inc. in the Contender Index is projected to net a 52% price gain based on mean target price set by 1 analyst.
Hewlett-Packard Inc. netting a 32% price gain in the Russell 50 index and the Dow 30 index was based on a mean target price set by 23 analysts.
Vector Group netting a 30% net gain in the Dividend Achievers 50 Index annually was based on a mean target price set by 1 analyst.
Diebold Inc. in the Carnevale Super 29 index netting its 29.6% net gain as of next October was based on a mean target price set by 6 analysts.
StoneMor Partners netting a 28% net gain in the Challenger index next year was based on a mean target price set by 3 analysts.
Old Republic International netting a 21.5% annual gain in the Champions index was based on mean target pricing set by 6 analysts.
General Electric netting a 18% net gain in the Dow 30 index next year was based on a mean target price set by 13 analysts.
As mentioned above, three to nine analysts is considered optimal for a higher probability projection estimate.
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.
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.
Disclosure: I am long T, VZ, INTC, CVX, JNJ. 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.