A compilation of Russell 2000 Small-Cap & Russell 1000 Large-Cap constituents listed as of market closing prices January 31 were compared to analyst mean target price projections one year out. A chart of that data shown below highlighted double digits posted by all but one of the top ten. A falling knife utility, an oil driller, & a telecom at the top highlighted this collection by exhibiting 17.25% to 45.66% price upsides. Seven financial sector equities posting 8.32% to 16.31% analyst estimated upsides trailed those three top dogs.
The chart above used one year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment to compare ten Russell 2000/1000 Index stocks showing the highest upside price potential into 2015 out of 20 selected by yield. The number of analysts providing price estimates was noted after the name for each stock. Three to nine analysts were considered optimal for a valid mean target price estimate.
Sixty For the Money
This article was intended to reveal bargain stocks to buy and hold for at least one year. It is one component in an ongoing series that has reported (1) dividend yield; (2) price upside; (3) net gain results based on analyst 1 yr target projections. Stocks reported were termed dogs because they were all selected based on Michael B. O'Higgins book "Beating The Dow" (HarperCollins, 1991), which revealed how high yielding stocks whose prices increased (and whose dividend yields therefore decreased) could be sold off once a year to sweep gains and reinvest the seed money into higher yielding stocks in the same index, named Dogs of the Dow. O'Higgins system works to find bargains in any collection of dividend paying stocks. The use of analyst price upside estimates allowed the dog stock universe to include popular growth equities, if desired.
The report below tallied yield (dividend / price) results from Yahoo Finance for the Russell 2000 & 1000 Indices as of market closing prices January 31 and compared them to results for the top ten dogs of the Dow. Arnold top Russell dog selections for January were disclosed step by step. Three actionable conclusions were drawn.
Dog Metrics Measured Russell Index Stocks by Yield
(1) Russell 2000 (top 30)
Russell Investments states:
"The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
The Russell 2000 Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set."
Russell 2000 stocks were ranked by yields calculated as of January 31 to reveal the top ten. Price and dividend data was sourced from Yahoo.com.
Ten stocks in this index promising the biggest yields in January represented just three of nine business sectors, utilities, financials, and services. Top dog was a lone utility, Atlantic Power Corporation (NYSE:AT). the infamous electric utility loved by bears and analysts but despised by stockholders. Eight financial firms placed two though eight and tenth: Resource Capital (NYSE:RSO) ; Dynex Capital, Inc. (NYSE:DX) ; KCAP Financial (NASDAQ:KCAP) ; Prospect Capital Corporation (NASDAQ:PSEC) ; TICC Capital Corporation (NASDAQ:TICC) ; BlackRock Kelso Capital Corporation (NASDAQ:BKCC) ; MCG Capital Corporation (NASDAQ:MCGC) ; Medley Capital Corporation (NYSE:MCC) . A lone service firm, Intersections Inc. (NASDAQ:INTX) showed 10.92% yield to take the ninth slot which completed the Russell 2000 top ten small cap dogs.
(2) Russell 1000 (top 30)
Russell Investments states:
"The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.
The Russell 1000 Index is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to ensure new and growing equities are reflected."
Top ten stocks in this index promising the biggest yields in January represented three of nine sectors: technology, financial, and basic materials. Top and bottom dogs were technology firms, Windstream Corp (NASDAQ:WIN), and Frontier Communications (NYSE:FTR). Seven firms were financial and American Capital Agency (NASDAQ:AGNC) led these from the second slot. The rest of the financial firms placed third through sixth, eighth & ninth: Chimera Investment Corp. (NYSE:CIM) ; Hatteras Financial Corp (NYSE:HTS) ; Annaly Capital Management Inc (NYSE:NLY) ; MFA Financial Inc (NYSE:MFA) ; Two Harbors Investment (NYSE:TWO) ; Ares Capital Corp. (NASDAQ:ARCC) . Finally, one basic materials company, Seadrill Limited (NYSE:SDRL) placed seventh and completed the Russell 1000 top ten dogs.
Dividend vs. Price Results Compared to Dow Dogs
Relative strengths of the top ten Russell 2000 dogs and the Russell 1000 dogs by yield as of market close 1/31/2014 compared to those of the Dow were graphed below. Projected annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks and the total single share prices of those ten stocks created the data points shown in green for price and blue for dividend.
Actionable Conclusion (1): Russell 2000 Retreated; Dow Dithered Up; Russell 1000 Dithered Down
The January Russell 2000 dividend dogs continued a bearish price course. In the past month Russell 2000 top ten dog annual dividend from 10k invested as $1k in each dog increased 2.8% while aggregate single share price of the ten dropped nearly 4%.
Conflict infected the Dow dogs as projected annual dividend from $10k invested as $1K in each of the top ten increased nearly 2.5% since December. Aggregate single share price also increased nearly 6.3% to confirm the dithering.
The January Russell 1000 collection of dividend payers dithered down. Top ten annual dividend from 10k invested as $1k in each dog dropped 1.6% since December while aggregate single share price of the ten dropped .76%.
The consolidation of Russell 2000 & Russell 1000 Indices constituents listed as of market closing prices January 31 and re-named Russell 2000/1000 ranked by yield as follows:
To quantify the top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential and was added to the simple high yield "dog" metric used to sniff out bargains.
Actionable Conclusion (2): Wall St. Wizards Wish 18.8% Net Gain from Top 20 Russell 2000/1000 Dogs By 2015
Top twenty dogs from the Russell 2000/1000 index were graphed below to show relative strengths by dividend and price as of January 31, 2014 and those projected by analyst mean price target estimates to the same date in 2015.
A hypothetical $1000 investment in each equity was divided by the current share price to find the number of shares purchased. The shares number was then multiplied by projected annual per share dividend amounts to find the dividend return. Thereafter the analyst mean target price was used to gauge the stock price upsides and net gains including dividends less broker fees as of 2015.
Historical prices and actual dividends paid from $1000 invested in the highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 2 created data points for 2014. Projections based on estimated increases in dividend amounts from $1000 invested in the twenty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 2 created the 2015 data points green for price and blue for dividends.
Yahoo projected 8.6% lower dividend from $10K invested in this group while aggregate single share price was projected to increase nearly 11.3% in the coming year. The number of analysts contributing to the mean target price estimate for each stock was noted in the next to the last column on the charts. Three to nine analysts was considered optimal for a valid estimate.
A beta (risk) ranking for each analyst rated stock was provided in the far right column on the above chart. A beta of 1 meant the stock's price would move with the market. Less than 1 showed lower than market movement. Higher than 1 showed greater than market movement. A negative beta numbers indicated the degree of a stocks movement opposed to market direction.
Actionable Conclusion (3): Analysts Forecast 10 Russell 2000/1000 DiviDogs to Net 18.7% to 49.7% By January 2015
Five of the top dividend yielding Russell 2000/1000 dogs were verified as being among the top ten gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy as graded by Wall St. wizards is 50% accurate.
Ten probable profit generating trades revealed by Yahoo Finance into 2015 were:
- Atlantic Power Corporation netted $496.98 based on dividends plus the mean of annual price estimates from five analysts less broker fees. The Beta number showed this estimate subject to volatility 64% less than the market as a whole.
- Seadrill Limited netted $383.53 based on dividends plus mean target price estimate from fourteen analysts less broker fees. The Beta number showed this estimate subject to volatility 44% greater than the market as a whole.
- Windstream Holdings, Inc. netted $286.15, based on dividends plus a mean target price estimate by thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 8% less than the market as a whole.
- KCAP Financial netted $268.58 based on dividends plus the mean of annual price estimates from five analysts less broker fees. The Beta number showed this estimate subject to volatility 43% greater than the market as a whole.
- Dynex Capital, Inc. netted $215.73 based on a mean target price estimate from eight analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 21% less than the market as a whole.
- MCG Capital Corporation netted $210.43 based on mean target price estimated by four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 22% greater than the market as a whole.
- Fifth Street Finance Corp. (FSC) netted $202.10, based on dividend plus mean target price estimates from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.
- MFA Financial Inc netted $200.85 based on a mean target price estimate from thirteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 69% less than the market as a whole.
- Resource Capital netted $199.02 based on dividends plus mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 8% less than the market as a whole.
- Medley Capital Corporation netted $187.40 based on dividends plus mean target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 60% less than the market as a whole.
The average net gain in dividend and price was over 26.5% on $1k invested in each of these ten dogs. This gain estimate was subject to average volatility 15% less than the market as a whole.
Net gain estimates above did not factor-in any tax problems resulting from return of capital or dividend distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.
The stocks listed above were suggested only as decent starting points for your index dog dividend stock purchase research process. These were not recommendations.
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 am long AT, FSC, CSCO, CVX, GE, INTC, MCD, MSFT, PFE, T, VZ. 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.