8 Prime Challenger Dividend Dogs Mark 30% To 94% New Year Upsides

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Includes: AHGP, APLP, BBEPQ, CLMT, CVE, DCP, ESV, EVEP-OLD, PMT, STWD, TCAP-OLD, TOO, VNR
by: Fredrik Arnold

Summary

10 Challenger dividend dogs (with 5 to 9 years of regular dividend raises) showed strong 1-yr. analyst mean target upsides averaging 43.64% as of January 21.

Challenger and Dow dogs both turned to the bull path for January.

Analysts projected average 53.7% 1-yr. net gains for EVEP, BBEP, VNR, EXLP, TOO, CVE, AHGP, DPM, TCAP, and CLMT.

Consider these stocks as possible reference points for your Challenger index January dividend dog stock investment studies.

Challenger Upside Calculations

Yield (dividend/price) results from David Fish's Dividend Challengers Index members (as of the January 21 market close) tallied from Yahoo Finance were compared with analyst mean target gain results one year out. The chart below showed eight basic materials, plus one financial and one services stocks posting 20.85% to 93.57% price upsides.

Below, four actionable conclusions were drawn as Arnold top dog selections for January by yield, price upsides, and net gain were disclosed step by step.

Actionable Conclusion (1): 10 Challenger Dogs Chase 43.64% Average Upsides Deliverable January 2016

Seeking Alpha reader requests prompted this series of index-specific articles reporting dividend yield plus price upside results for these indices: Dow 30; S&P 500; S&P Aristocrats; Russell 1000; Russell 2000; Russell Combined; NASDAQ 100; Champions; Contenders; Challengers; CCC Combined; Global. Bonus reports covered Bad Boy AllStars, and Sector Leaders.

Forty-five For the Money

This article was written to reveal bargain stocks to buy and hold from January to June or perhaps up to one year. See Dow 30 article for explanation of the term "dogs" for stocks reported based on Michael B. O'Higgins' book, Beating The Dow (HarperCollins, 1991), now named Dogs of the Dow. O'Higgins' system works to find bargains in any collection of dividend paying stocks. Utilizing analyst price upside estimates expanded the stock universe to include popular growth equities, if desired.

Dog Metrics Revealed Prime Challenger Index Stocks by Yield

David Fish's December 31 Challengers list contained stocks distinguished by having paid increasing dividends for 5 to 9 straight years and were ranked by yield to reveal the top ten.

Ten challenger dogs posting the biggest projected January dividend yields included firms representing three of nine market sectors: basic materials (6); financials (3); services (1). Top dog was EV Energy Partners LP (NASDAQ:EVEP-OLD)[1], the best of those six basic materials companies. Other basic materials firms took slots two, three, four, seven, & eight: BreitBurn Energy Partners LP (BBEP) [2]; Vanguard Natural Resources LLC (NYSE:VNR) [3]; Calumet Specialty Products Partners LP (NASDAQ:CLMT) [4]; Ensco plc (NYSE:ESV) [7]; Exterran Partners LP (EXLP) [8].

Three financial firms placed fifth, sixth, and tenth: PennyMac Mortgage Investment Trust (NYSE:PMT) [5]; Triangle Capital Corp. (NYSE:TCAP-OLD) [6]; Starwood Property Trust Inc. (NYSE:STWD) [10]. One Services firm captured ninth place, Teekay Offshore Partners LP (NYSE:TOO) [9], and completed the top ten January Challengers dogs list.

Dividend vs. Price Results Versus Dow Dogs

Periodic strength of ten top Challenger dogs by yield was graphed below as of market closing prices through 1/21/2015 and compared to that of the Dow. Projected annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks and the total single share price of those ten stocks created the data points shown in green for price and blue for dividend.

Actionable Conclusion (2): Challenger And Dow Dogs Turned Bullish in January

Aggregate single share price of the top ten Challengers ranked by yield turned up nearly 2% since December. Meanwhile dividend from $10k invested as $1k in each of those top ten dogs fell 2.3% for the month. The result was a bullish sign.

Dow dogs got bullish, too dropping 3% in annual dividend from $10k invested as $1K in each of the top ten, while aggregate single share price popped up nearly 17% after December 15.

As a result, the Dow dogs overbought condition (in which aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k each in those ten) widened beyond its record November high. The overhang was $145 or 38% for January; retreated to $125 or 33% in February; swelled to $149 or 40% in March; expanded to $173 or 47% in April; shrank to $170 or 46% come May; swelled to $215 or 59% for July; fell back to $197 or 53% in August; widened to $239 or 65% in September; widened again to $257 or 70% into November; narrowed to $198 or 50% December 15; then gapped wider to $311 or 81% January 20.

To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metric, the analyst mean price target is another tool used to dig out bargains

Actionable Conclusion (3): Wall St. Wizards Wonked A 22.45% Average Net Gain from Top 30 Dividend Challenger Dogs By January, 2016

Top thirty dogs from David Fish's Dividend Challengers index were graphed below to show relative strengths by dividend and price as of January 21, 2015 and those projected by analyst mean price target estimates to the same date in 2016.

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 2016.

Historic prices and actual dividends paid from $1000 invested in the thirty highest yielding stocks and the aggregate single share prices of those thirty stocks divided by 3 created data points for 2015. Projections based on estimated increases in dividend amounts from $1000 invested in each of the thirty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 3 created the 2016 data points green for price and blue for dividends.

Yahoo projected a 20% lower dividend from $10K invested in this group ($1k each) while aggregate single share price was projected to increase nearly 17% 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 number indicated the degree of a stocks movement opposite of market direction.

Actionable Conclusion (4): Analysts Augur 10 Dividend Challenger Dogs to Net 29.8% to 114.21% by Mid-January 2016

Seven of the ten top yielding Challenger dogs were verified as being among the ten main gainers for the coming year based on analyst 1-year target prices. So this month the dog strategy was deemed 70% accurate by Wall St. wizard projected 1-year median target prices.

Ten probable profit generating trades were revealed by Thomson/First Call in Yahoo Finance into 2015:

EV Energy Partners LP was projected to net $1,142.16 based on dividends plus median target price estimate from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 56% greater than the market as a whole.

Breitburn Energy Partners LP was projected to net $929.32 based on estimates from fourteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 22% greater than the market as a whole.

Vanguard Natural Resources LLC was projected to net $679.62 based on a median target price estimate from eleven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 9% less than the market as a whole.

Exterran Partners LP was predicted to net $461.27 based on dividends plus a median target price estimate by eight analysts less broker fees. The Beta number showed this estimate subject to volatility 5% greater than the market as a whole.

Teekay Offshore Partners LP was projected to net $434.75 based on estimates from seven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 36% less than the market as a whole.

Cenovus Energy Inc (NYSE:CVE) was projected to net $400.67 based on dividends plus a median target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 18% more than the market as a whole.

Alliance Holdings Group LP (NASDAQ:AHGP) was projected to net $368.42 based on dividends plus mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 93% less than the market as a whole.

DCP Midstream Partners (DPM) was projected to net $360.08 based on dividend plus mean target price estimates from fifteen analysts less broker fees. The Beta number showed this estimate subject to volatility 4% less than the market as a whole.

Triangle Capital Corp. was projected to net $298.42 based on dividends plus median target price estimate from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 40% less than the market as a whole.

Calumet Specialty Products Partners LP was projected to net $298.02 based on a median target price estimate from ten analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.

The average projected net gain in dividend and price was over 53.7% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 11% less than the market as a whole.

The net gain or loss estimates above did not factor in any foreign or domestic tax problems resulting from distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.

Stocks listed above were suggested only as possible starting points for your index dog dividend stock purchase or sale 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.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from www.indexarb.com; http://dripinvesting.org/Tools/Tools.asp; finance.yahoo.com; analyst mean target prices by Thomson/First Call in Yahoo Finance.

Disclosure: The author is long CSCO, GE, PFE, T, VZ.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.