Strategic Dividend Dogs Stalk 14% To 38% Spring Upsides And 17% To 40% Net Gains

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Includes: CSCO, DOW, GME, LVS, MIC, MSFT, PACW, POT, SCS, SJR, STR, STX, TU
by: Fredrik Arnold

Summary

Strategic Dividend Index (SDI) selection criteria are: (1) dividend yield; (2) asset valuation; (3) profitability; (4) estimated growth of yield; and (5) momentum.

Miller/Howard Investments (M/H) of Woodstock, New York initiated the index as of July 2, 2014.

Ten top M/H SDI stocks representing five business sectors showed upsides averaging 21% as of March 27.

Analysts projected average 22.85% median one-year target net gains for: TU; SJR; SCS; STX; MIC; GME; POT; MSFT; CSCO; and LVS.

Consider these stocks as starting points for your spring Miller/Howard Strategic Dividend Index dog stock investment research.

Processing M/H SDI Dogs

One-year results graphed by Yahoo Finance based on market closing prices March 27 for ten stocks from five sectors were ranked by analyst one-year target projections and yield (dividend / price) to reveal four actionable conclusions discussed below. Miller/Howard Investments, publisher of the index states:

"The Miller/Howard Strategic Dividend Index (MHDT) seeks to capture and distill all we have learned over nearly a quarter century of active management of dividend companies. Our strategic, rules-based index is created to enhance current passive approaches to asset allocation, going beyond market exposure by applying persistent, strategic factors we have observed and confirmed through our active management. We seek to find and retain the "good," as opposed to cap-weighted indexes, which in our view hold the good, the bad, and the ugly-by their very nature and definition."

The Latest Strategic Dividend Index List

The Miller/Howard Strategic Dividend Index is a composite of 30 publicly-traded equities that provide above-average dividend yields and dividend growth, and are equal weighted based on certain quantitative fundamental factors. This is the fourth quarterly update.

Dog Metrics Found 10 Top Strategic Dividend Index Stocks By Yield

Top ten Miller/Howard Strategic Dividend Index dogs showing the biggest dividend yields by this screen as of March 27, 2015, represented five of nine sectors: (1) services; (2) basic materials; (3) financials; (4) technology; and (5) utilities.

Top M/H SDI stock by yield, Macquarie Infrastructure Co. LLC (NYSE:MIC) [1] was one of three service firms. The other two service firms placed second and eighth: Las Vegas Sands Corp. (NYSE:LVS) [2]; and GameStop Corp. (NYSE:GME) [8].

Two basic materials sector firms placed third, and tenth: Potash Corp of Saskatchewan Inc. (NYSE:POT) [3]; Dow Chemical Co. (NYSE:DOW) [10]. A lone financial firm placed fourth in the top ten by yield, PacWest Bancorp (NASDAQ:PACW) [4].

Three technology sector firms placed fifth through seventh: Shaw Communications Inc. (NYSE:SJR) [5]; Seagate Technology PLC (NASDAQ:STX) [6]; and TELUS Corp. (NYSE:TU) [7].

Ninth by yield was the lone utilities representative, Questar Corp. (NYSE:STR) [9] to complete the top ten March quarterly M/H SDI dogs by yield.

Actionable Conclusion (1) Ten M/H SDI Top Upside Dogs Showed 14.16% To 19.74% Median Target Price Upsides To March 2016

Since late 2011, this report series has applied dog dividend methodology to uncover possible buy opportunities in each of eight major market sectors listed by Yahoo Finance: basic materials (BasMats), consumer goods (ConGo), financials (Fins), healthcare (Heal), industrial goods (IndiGo), services (Svcs), technology (Tec), and utilities (Utes). 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.

This report puts another index into the mix. Since the Miller/Howard Strategic Dividend Index constituent stocks are updated quarterly, the next report will follow their June update.

Ten For The Money

M/H SDI stocks to buy and hold for at least one year were reported based on the list of 30 above.

Stocks reported were termed dogs because most were 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. Utilizing analyst price upside estimates has expanded the stock universe to include popular growth (momentum) equities, as demonstrated below.

Ten M/H SDI Top Dividend Vs. Price Results Compared To Dow Dogs

Graphs below compared relative strengths of the top ten M/H SDI dogs by yield as of market close 3/27/2015 with those of the Dow industrials index. Annual dividend history from $10,000 invested as $1k in each of the ten highest-yielding stocks along with the total single share price of those ten stocks made the data points shown in green for price and blue for dividends.

Actionable Conclusion (2): M/H SDI Dogs Retreated As Dow Dogs Charged To End March

M/H SDI top ten index dogs by yield as of March 27 retreated bearishly from December. Dividend from $10k invested as $1k in each of the top ten stocks soared while aggregate single share price of those ten flopped. Dividend ascended at a rate of 17% to end the quarter while total single share price fell 5% for the period. The M/H SDI top ten index dogs are within $13 of being equal aggregate single share price paid and dividends earned from $10k invested as $1k in each.

Meanwhile, Dow dogs charged. They dropped 7% in estimated annual dividend from $10k invested as $1k in each of the top ten since December while aggregate single share price increased 9.4% for the quarter.

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) showed a record March high. The overhang was $179 or 49% for June; widened to $239 or 65% in September; narrowed to $198 or 50% December 26; now gapped wider to a record $283 or 77% for March.

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" metrics, analyst mean price target estimates provided another tool to dig out bargains.

Actionable Conclusion (3): Wall St. Wizards Wanted A 9.6% Average Median Target Price Upside For 30 Miller/Howard SDI Upside Dogs Come March 2016

Miller/Howard SDI stocks were graphed below to show relative strengths by dividend and price as of March 27, 2015, and those projected by analyst mean price target estimates to the same date in 2016.

A hypothetical $1,000 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 $10,000 invested as $1k in each of the stocks and the aggregate single share prices of those ten stocks created data points for 2015. Projections based on estimated dividend amounts from $1,000 invested in the ten stocks and aggregate one-year analyst target share prices from Yahoo Finance created the 2016 data points green for price and blue for dividend.

Yahoo analysts' median one-year targets projected a 12% lower dividend from $10k invested as $1k in ten dogs in this group while aggregate single share price for those ten was projected to increase by 13% in the coming year. Notice price exceeding dividend in the coming year to forecast an overbought condition for the Miller/Howard SDI top yield dogs.

The number of analysts contributing to the 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 projection estimate. Estimates provided by one analyst were not applied (n/a).

A beta (risk) ranking for each stock was provided in the far right column of 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 stock's movement opposite of market direction.

Actionable Conclusion (4): Analysts Alleged 16.9% To 39.9% Net Gains For Ten Miller/Howard SDI Dogs By Late March 2016

Seven of ten-top dividend-yielding Miller/Howard SDI dogs were verified as being among the top ten of thirty gainers for the coming year based on analyst one-year target prices. So, this quarter the dog strategy for the Miller/Howard SDI as graded by Wall St. wizards was 70% accurate.

Ten probable profit-generating trades were revealed by Thompson/First Call in Yahoo Finance for 2016:

TELUS Corp. was projected to net $399.09, based on dividends, plus a mean target price estimate from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 5% less than the market as a whole.

Shaw Communications was projected to net $347.37, based on dividends, plus the mean of annual price estimates from twelve analysts, less broker fees. The Beta number showed this estimate subject to volatility 13% less than the market as a whole.

Steelcase Inc. (NYSE:SCS) was projected to net $222.71, based on dividends, plus mean target price estimates from three analysts, less broker fees. The Beta number showed this estimate subject to volatility 30% less than the market as a whole.

Seagate Technology was projected to net $215.03, based on dividends, plus mean target price estimates from eighteen analysts, less broker fees. The Beta number showed this estimate subject to volatility 122% greater than the market as a whole.

Macquarie Infrastructure was projected to net $194.91, based on dividends, plus mean target price estimates from five analysts, less broker fees. The Beta number showed this estimate subject to volatility 43% less than the market as a whole.

GameStop Corp. was projected to net $190.64, based on dividends, plus a mean target price estimate from seventeen analysts, less broker fees. The Beta number showed this estimate subject to volatility 6% less than the market as a whole.

Potash Corp. of Saskatchewan Inc. was projected to net $182.62, based on dividend, plus mean target price estimates from twenty-nine analysts, less broker fees. The Beta number showed this estimate subject to volatility 46% less than the market as a whole.

Microsoft Corporation (NASDAQ:MSFT) was projected to net $181.86, based on a mean target price estimate from thirty-one analysts, combined with projected annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 12% less than the market as a whole.

Cisco Systems (NASDAQ:CSCO) was projected to net $181.25, based on dividends, plus mean target price estimates by thirty-two analysts, less broker fees. The Beta number showed this estimate subject to volatility 45% more than the market as a whole.

Las Vegas Sands Corp. was projected to net $169.04, based on a median target price estimate from eighteen analysts, combined with projected annual dividends, less broker fees. The Beta number showed this estimate subject to volatility 76% more than the market as a whole.

The average net gain in dividend and price was estimated at 22.85% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 9% more than the market as a whole.

The net gain 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 reference 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; www.dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.

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

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