Challenger Dogs Come January
Yield (dividend/price) results from David Fish's Dividend Challengers Index members revealed just two of nine business sectors represented in the top 10: basic materials (8) and services (2). Those 10 stocks posted yields averaging 21.42%.
Actionable conclusions by yield, target price upsides and net gains were drawn below as top Challenger dog selections for January were examined, step by step.
Actionable Conclusion (1) 10 Top Dividend Challenger Dogs Made 14.76% to 33.93% Yields as of January 22
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 2000; NASDAQ 100; Champions; Contenders; Challengers; CCC Combined; and Global. Bonus reports cover Bad Boy AllStars, and Sector Leaders.
50 Make the Money
This article was written to reveal bargain stocks to buy and hold up to one full 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. Including analyst price upside estimates in the analysis expanded the stock universe to include popular growth equities, as desired.
Dog Metrics Charted 50 Leading Challenger Stocks by Yield
David Fish's December 31 Challengers list contained stocks distinguished by having paid increasing dividends for 5 to 9 straight years. These were ranked by yield as of January 22 closing prices to reveal the top 10.
Top dog for January was American Midstream Partners LP (NYSE:AMID) , the best of eight basic materials companies ranking in the top 10 by yield. The other basic materials firms took all slots but eight and 10 where the two service sector representatives dwelled: CSI Compressco LP (NASDAQ:CCLP) ; Targa Resources Partners LPP (NYSE:NGLS) ; Archrock Partners LP (NASDAQ:APLP) ; NGL Energy Partners LP (NYSE:NGL) ; Martin Midstream Partners LP (NASDAQ:MMLP) ; Targa Resources Corp. (OTCPK:TGLP) ; Williams Partners LP (NYSE:WPZ) .
Two service firms captured eighth and 10th positions on the list, Golar LNG Partners LP (NASDAQ:GMLP) , and Global Partners LP (NYSE:GLP)  to complete the ten January Challengers top yield dog list.
Challenger Dividend vs. Price Results Compared To Dow Dogs
Periodic strength of 10 top Challenger dogs by yield was graphed below as of market closing prices through 1/22/2016 and was matched to those of the Dow. Projected annual dividend history from $10,000 invested as $1k in each of the 10 highest yielding stocks and the total single share price of those 10 stocks created the data points shown in green for price and blue for dividend.
Actionable Conclusion (2): Challengers & Dow Dogs Mixed Up After December
Challengers dividends from $10k invested as $1k in each dog soared. Aggregate single share price for the 10 also rose after December to signal a mixed up action signal. Challengers top 10 dog dividends rocketed up 38%, while price increased 9%. The Contenders were nowhere near overbought and widened their gap of dividend over price. Dividend from $10k invested in the top 10 Challengers grew from being 1137% more to 1458% more than the aggregated single share price of those stocks between late November and January.
Dow also mixed up, with aggregate single share price for the 10 growing 3% between November 25, and January 22, while annual dividend from $10k invested as $1K in each of the top 10 increased 11%, according to IndexArb.
As a result, the Dow dogs' overbought condition (where aggregate single share price of the 10 exceeded projected annual dividend from $10k invested as $1k each in those 10) shrank a bit again after December.
Actionable Conclusion (3): Dow Dogs Are Overbought
The overhang was $250 or 65% for February; slid to $243 or 62% in March; gapped to $295 or 81% for a new record in April; then broke the new annual record again in May at $311 or 87%. June saw the gap narrow to $286 or 77%. The July/August market set a new high for the gap at $329 or 85%. September shrank the gap to $279 or 67%. October expanded the chasm again to $323 or 82%. November-December constricted the gap somewhat to $271 or 70%. January narrowed the gap slightly to $267 or 63%.
This gap between high share price and low dividend per $1k invested shows an overbought condition. Meaning, these are low risk and low opportunity Dow dogs.
Compared to the Dow, the Challenger 10 after April 2015 progressively retreated, bear-like, pausing only for a dither down in October. In other words, Challengers' aggregate dividend value of $1k invested in each dog continually rose above the aggregate single share price every month since April, except October. Meanwhile, Dow prices are overdue to make a 32% downward price adjustment to become more attractive buys for dividend yield.
Actionable Conclusion (4): 10 Challenger Dogs Chased 78.58% Average Upside To January 2017
To quantify top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metrics, analyst mean price target estimates were another tool to dig out bargains.
Actionable Conclusions: Wall St. Wizards Augured (5) A 46.83% Average Upside and (6) 42.21% Average Net Gain from Top 30 Dividend Challengers Come January, 2016
Top 30 dogs from David Fish's Dividend Challengers list were graphed below as of January 22, 2016 as compared to analyst mean price target estimates for the same date in 2017.
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 2017.
Historic prices and actual dividends paid from $30,000 invested as $1k in each of the highest yielding stocks and the aggregate single share prices of those 30 stocks divided by 3 created data points for 2016. Projections based on estimated increases in dividend amounts from $1000 invested in the 30 highest yielding stocks and aggregate one-year analyst target share prices from Yahoo Finance divided by 3 created the 2017 data points, green for price and blue for dividend.
Analyst data reported by Yahoo finance projected a 33% lower dividend from $30K invested as $1k in each stock in this group, while aggregate single share price was projected to increase 44% 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 had a better history of accurate estimates.
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 stock price movement opposite of market direction.
Actionable Conclusion (7): Wall St. Wizards Wanted 10 Dividend Challenger Dogs To Net 70% to 150.58% Gains By January 2017
Seven of the 10 top dividend yielding Contender dogs were among the ten gainers for the coming year based on analyst 1-year target prices. So this period the dog strategy as graded by Wall St. wizards was 70% accurate.
Ten probable profit generating trades were revealed by Thomson/First Call in Yahoo Finance into 2017:
Targa Resources Partners LP was projected to net $1,505.812 based on dividends plus a median target price estimate by sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 47% more than the market as a whole.
Williams Partners LP was projected to net $1189.79 based on the lowest target price estimate from twelve analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 47% more than the market as a whole.
Archrock Partners LP. was projected to net $1,164.07 based on dividend plus mean target price estimates from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 39% more than the market as a whole.
American Midstream Partners was projected to net $935.12 based on a median target price estimate from six analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 28% less than the market as a whole.
Global Partners LP was projected to net $873.65 based on dividends plus a median target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 18% more than the market as a whole.
Golar LNG Partners LP was projected to net $835.73 based on dividends plus mean target price estimate from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 33% more than the market as a whole
Targa Resources Corp. (NYSE:TRGP) was projected to net $821.59 based on dividends plus median target price estimate from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 166% more than the market as a whole.
Medallion Financial Corp. (TAXI) was projected to net $744.71 based on estimates from two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 58% more than the market as a whole.
Western Gas Partners LP (NYSE:WES) was projected to net $731.68 based on a median target price estimate from eighteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 5% less than the market as a whole.
Ashford Hospitality Trust (NYSE:AHT) was projected to net $700.08 based on dividends plus eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 52% more than the market as a whole.
The average projected net gain in dividend and price was 95.02% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 59% more than the market as a whole.
Dog Metrics Extracted Bargains
As noted above, 10 Challenger dividend dogs showing the biggest dividend yields as of January 22 represented only two of nine business sectors: basic materials (8) and services (2). Listed as of market close, January 22, the Challenger dividend dogs ranked themselves by yield as follows:
Actionable Conclusions: Analysts Allege (8) 5 Lowest Priced of Top 10 Highest Yield Challengers Deliver 96.63% vs. (9) 88.65% Net Gains from All 10 As Of January 22, 2017
$5000 invested as $1k in each of the five lowest priced stocks in the top 10 Challenger kennel by yield were 14.03% more net gain than $5,000 invested as $500 in each of all 10. The fifth lowest priced Challenger dog, Targa Resources Partners LP , was projected to deliver the greatest net gain of 150.98%.
The lowest priced five Challenger dogs as of January 22 were: American Midstream Partners LP; CSI Compressco LP; Archrock Partners LP; NGL Energy Partners LP; Targa Resources Partners LP, whose prices ranged from $5.57 to $12.59.
The higher priced five Challenger dogs as of January 22 were: Golar LNG Partners LP; Martin Midstream Partners LP; Global Partners LP; Targa Resources Corp.; Williams Partners LP, whose prices ranged from $13.10 to $21.45.
This distinction between five low priced dividend dogs and the general field of 10 reflects the "basic method" Michael B. O'Higgins employed for beating the Dow. It also works well for teasing bargain Challenger dogs, as you see.
The added scale of projected gains based on analyst targets contributed a unique element of "market sentiment" gauging upside potential. It provided a here and now equivalent of waiting a year to find out what might happen in the market. Its also the work analysts got paid big bucks to do.
A caution is advised, however, as analysts are historically 20% to 80% accurate on the direction of change and about 0% to 20% accurate on the degree of the change.
The stocks listed above were suggested only as reference points for a Challenger dog stock investigation in late January 2015. These were not recommendations.
See my instablog for specific instructions about how to best use the dividend dog data featured in this article.
Gains/declines as reported do not factor in any tax problems resulting from dividend, profit, or return of capital distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.
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/we are long CSCO, PFE, 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.
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