Dogs Of The Russell 1000 Index Update For November: Price Gains Ahead?

by: Fredrik Arnold

Any portfolio of stocks is only as strong as the grounds for its collection. Much like a building is planned and built to suit its location, so must a stock portfolio be built to suit the owner's purpose. Many investment strategists have recommended dividend paying stocks. Recent articles have investigated and compared projected dividend yields from eight indices in an effort to sort out an answer to the question, "which dividend stocks are good, better, best, bad or ugly?"

Many well-paid financial wizards busy themselves attempting to gain followers and credibility for their chosen collections of equities. Some are:

  • Russell Investments, a subsidiary of Northwestern Mutual Life Insurance, t publishes the Russell 1000 index.

  • Standard and Poors, a division of McGraw Hill (MHP) publishes several indices, including the S&P 500 and the S&P 100.

  • Dow Jones, a CME Group Company (NASDAQ:CME), aggregates the Dow Jones Industrial index of 30 stocks commonly called the DOW.

  • NASDAQ, the nation's first electronic stock exchange was once the National Association of Securities Dealers Automated Quotations.

  • NYSE, the New York securities Exchange with Euronext has five divisions specializing in financial transaction systems and information.

  • AMEX, the American Stock Exchange is the third largest in the U.S. and is now part of NYSE Euronext.

  • CBOT the Chicago Board of Trade is a contract market division of the CME Group.

  • Most investment houses, such as JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Merrill Lynch (NYSE:BAC), Morningstar, Vanguard, Edward Jones, Fidelity and Vanguard, collect lists of multi-purpose equites.

Instant Investment Wisdom

To determine the best of the best dividend stocks, many investors rely on a once per year trading system triggered by yield, called the "Dogs of the Index" strategy. This strategy gives the investor the tactical advantage of obtaining all the wisdom and knowledge of the well-paid wizards of investment and publishing for free, merely by choosing the existing collection of equities built by the experts.

Charts below reveal low yielding stocks whose prices increase (or whose dividends decrease) to be sold off once each year in order to sweep gains and reinvest the seed money into higher yielding stocks in the same index. Two key metrics determine the yields that rank the Russell 1000 dog stocks: (1) Stock price; (2) Annual dividend. Dividing the annual dividend by the price of the stock declares the percentage yield by which each dog stock is ranked. Thus the investor is able to follow, trade, and await the results from an investment in the lowest priced, highest yielding five or ten stocks in the index.

Russell 1000 Index Revelations for November

Picks below are as of 11/11/11 by Yahoo Finance data ranking the top dividend yielding stocks listed on the Russell 1000 Index. The company 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.

Again in November, seven of the top ten stocks in this index are financial firms paying the big dividends. Of the top thirty Russell 1000 dividend payers, just six are non-financial companies. Two consumer goods, two services, one technology, and one industrial are the non financial sectors represented. This index is updated quarterly so the next replacement of the 30 top Russell 1000 dividend equities won't happen until January.

November vertical moves in Russell 1000 Index dividend payers

Over the first nine months of 2011, three different firms bubbled to the top of the list. Color code shows: (Yellow) firms listed in first position at least once between January and November 2011; (Cyan Blue) firms listed in tenth position at least once between January and November 2011; (Magenta) firms listed in twentieth position at least once between January and November 2011; (Green) firms listed in thirtieth position at least once between January and November 2011. Duplicates are depicted in color for highest ranking attained.

Click on charts below to enlarge:

November dividend vs. price results for Russell 2000 Index top 10

Below is a graph of the relative strengths of the top ten Russell 1000 index stocks by yield as of November 11, 2011. Using eleven months of historic projected annual dividend history from $1000 invested in the ten highest yielding stocks each month and the total single share prices of those ten stocks creates the data points for each month shown in green for price and blue for dividends.

Click to enlarge:

October's update from Russell 200 to 1000 components forced the annual projected dividend totals for $1000 invested in the top ten Russell stocks to drop dramatically toward their aggregate total single share prices. The bulls did hold sway in the past month and Russell yields again dropped. Will price gains be rampant on the Russell next month? Stay tuned.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This article is for informational and educational purposes only and shall not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security.