This monthly post includes price information referenced in the previous dividend comparison article. This report was inspired last August when a Seeking Alpha reader requested that I "add relative financial data on the companies selected" for my graphs comparing indices using annual yield projections. That request led to the development of a simple tool to chart investment risk. The tool is used to gauge relative risks prior to the purchase of any five or 10 Dogs of the Index stocks showing the highest dividend yields at any point during the year.
The Dogs of the Index strategy popularized by Michael B. O'Higgins in "Beating The Dow" (HarperCollins, 1991) reveals how high-yielding stocks whose prices increase (or whose dividends decrease) can be sold off once each year 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 index 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 investors, having selected their portfolios of five or 10 stocks in any one index, are able to follow, trade, and await the results from their investments in the lowest priced, highest yielding stocks selected.
The investment risk tool is constructed on a given date in the following manner: (1) Add the single share prices of the top 10 stocks on an index list. Then, (2) add the total annual dividend amounts projected from $1000 invested in each of those 10 stocks. Finally, (3) compare the resulting two numbers.
A standard for comparison of those resulting numbers was established in July, 2011 when JPMorgan's Thomas Lee pronounced the JPMorgan list of 22 New Sovereigns to be of lower risk than U.S. Treasury Bonds. TheBarron'sarticle covering Lee's announcement defined a Sovereign as an entity that can print money or tax at will. Lee's report listed stocks showing less risk of default at that time than the sovereign U.S. government based on five-year credit spreads, free cash flow yields exceeding bond yields, ratings of overweight by JPMorgan, and showing upside to their target prices.
The graphs shown for those JPMorgan New Sovereign stocks display aggregate 10 single share prices to be higher than projected dividends from $1,000 invested in each of the 10. By that standard of divergence, eight indexes surveyed ranked themselves in the following order from high to low over the past few months:
(Click charts to enlarge)
Perhaps this information reviewed monthly can be one step toward Yale economist Robert Shiller's admonishment to "make conservative preparations for possible bad outcomes."
Stocks comprising each Index
The following charts display prices and projected annual dividends for 10 stocks comprising each index surveyed 2/10/12. Yield data for the NASDAQ, and Dow index stocks is from here. S&P 500, Russell, Sectors, Aristocrats, NYSE International, and JPMorgan Sovereigns yield data is from Yahoo Finance.
Any variation in dividend projections from identical stocks on separate lists results from the data coming from separate sources. For example JNJ projected annual dividend is listed as $2.37 at $64.60 for 3.67% yield in the 2/10/12 indexarb.com database used for the Dow 30 Index but JNJ is $2.27 at $64.60 for 3.53% yield by the 2/10/12 Yahoo Finance data used for the S&P 500 Aristocrats Index.
S&P numbers in 2012 will no longer reported through IndexArb.com because "Standard & Poor's felt that this information infringed on its intellectual property and insisted [on] limits [to] the number of stocks to 10 in the free part of [the] website but allows the full, complete listing of stocks and their dividend yields in the subscriber part of [the] website."
McGraw Hill (owner of the Standard & Poor's Lists) is no intellectual giant but enjoys the heft of its girth.
In February nine stocks repeat on two lists each: Alon Holdings (NYSE:BSI); Great Northern Iron (NYSE:GNI); Armour Residential REIT (NYSE:ARR); American Capital (NASDAQ:AGNC); Intel (NASDAQ:INTC); Johnson & Johnson (NYSE:JNJ); Merck (NYSE:MRK); Paragon (PRGN); Pitney Bowes (NYSE:PBI);
Graphing Dividends vs. Price
Each graph below shows monthly points of comparison between annual projected dividends resulting from $10,000 invested as $1,000 each in the top 10 high-yield stocks (blue points) versus the total prices of one share of each of the 10 stocks (green points) by index. Grouped together the graphs display the comparative gyrations of the eight indices.
Top Dog Stocks in 3x9 and 1x9+1 Sectors
The 3x9 list is composed of top dividend payers regardless of index and limited to three stocks from each of nine sectors. The other list has one top yielding stock from each of nine business sectors along with the best yielding runner-up from any sector to be the tenth, and is named 1x9+1 Sectors Index.
For February, the top 10 dividend paying stocks in this index represent four sectors: three services, two technology, three financial, and two basic materials. The top dividend yield slot is tenuously claimed by a service firm, Paragon Shipping (PRGN) which hasn't paid a dividend since March 2011. The former leader CPI Corp. (OTC:CPIC) is now off the list with no dividends projected for 2012.
The nine top dogs and top runner-up on the above chart form the February 1x9+1 list:
Notice how dividends rise and fall as prices fall and rise in opposition. The bear held sway in December/January and 3x9 Sector and 3x9+1 dividend yields popped up as stock prices dropped. However in February Sector dividends sank as stock prices increased.
Russell 1000 Index Dogs
These financial and service firms pay big dividends. One firm has held the top of the Russell list, American Capital Agency (AGNC), despite its January 12% divided reduction from $5.60 to $5.00 annually.
Projected dividend totals for $1000 invested in the top ten Russell stocks dropped dramatically toward their aggregate total single share prices. The bulls did hold sway again since November and Russell dividend yields dropped as their aggregate share prices increased.
S&P 500 Index Dogs
Four of the top 10 stocks paying the biggest dividends in this index are technology firms. Frontier Communications (FTR) topped this at 14.56% for February. The remaining six include three consumer firms, one financial, one utility, and one service.
Dividend totals for $1000 invested in the top 10 stocks rise away from their aggregate total single share prices. The bears have had their way since October and S&P 500 dividend yields increased as stock prices fell. This is the one index where the top 10 yielding stock prices are still seeking bargain basement levels.
NYSE International Index Dogs
As of February 10, five of the top 10 stocks paying the biggest dividends in this index are technology firms. Nokia (NYSE:NOK) last topped this list December 30, but now gave way to Telefonica SA (NYSE:TEF). NOK yield plummeted as its forward looking divided estimate on Yahoo dropped from $.48 to $.18 while the share price rose nearly 3%.
These NYSE International 100 Index top 10 stocks showed bull market convergence as dividends from $1k invested in the top 10 moved down toward their rising aggregate total single share prices.
NASDAQ 100 Index Dogs
Six of the top 10 stocks paying the biggest dividends in this index were again technology firms. Vodafone (NASDAQ:VOD) and Seagate Technologies (NASDAQ:STX) have traded places at the top of this list twice over the past year throwing 5 to 8% yields. On February 10th VOD was tops again at 6.93%. The remaining four firms represented two business sectors with three consumer firms, plus one service outfit.
NASDAQ 100 February top 10 yield components signaled bullish market convergence with annual dividend yields dropping as aggregate total single share prices increased.
Dow Industrial Index Dogs
Three technology firms paying the biggest dividends on the Dow in February were: (1) AT&T (T); (2) Verizon (NYSE:VZ); (8) Intel (INTC). As it has for the past year, AT&T (T) continues atop this list. The rest of the Dow top 10 dogs included three healthcare, one industrial, one consumer, and two basic materials firms.
The bull market has pushed Dow aggregate single share prices of the top 10 stocks by yield beyond the annual projected dividend total from $1000 invested in each in 2012. That action repeats a pattern exhibited in January and February 2011.
S&P 500 Aristocrats Dogs
Consumer goods firms constituted four of the top 10 stocks paying the biggest dividends on the S&P 500 Aristocrats as of February 10. The leading consumer goods firm, Pitney Bowes (PBI), took over the top spot after Century Link (NYSE:CTL) left the list in January since CTL failed to increase dividends in 2011 and broke the 25-year requirement to be listed.
Bullish vertical moves were made over this 40 days report by Cincinnati Financial (NASDAQ:CINF) with a 13% price gain, and Emerson Electric (NYSE:EMR) showing 12% price improvement to move out of the top ten.
The S&P 500 Aristocrats Index component for February shows a small discernible bearish price trend for this index as prices for the top 10 equities veered slightly to the southerly direction.
Meanwhile projected total annual dividends paid from $1000 invested in each of those top 10 stocks stayed nearly level at $484.
The top 10 stocks paying the biggest dividends of the JPMorgan Sovereigns for February include firms from six of nine business sectors: two healthcare firms; one basic materials; two industrials; two services; two consumers; one technology. Lockheed Martin (NYSE:LMT) is at the top by yield.
JPMorgan Sovereigns Index components for February showed a small discernible bullish price trend in this index as prices for the top 10 equities veered slightly northward.
Meanwhile projected total annual dividends paid from $1000 invested in each of those top 10 stocks dropped to the $336 level to drop away noticeably.
A reader request to "add relative financial data on the companies selected" for my August article comparing seven sectors by annual yield projections has inspired a simple tool to gauge investment risk. The tool is best applied prior to the purchase of any five or 10 Dogs of the Index stocks at any point during the year. Using JPMorgan's New Sovereigns as the baseline standard of divergence, the eight indexes surveyed rank themselves in the following order from high to low risk in February:
This information will continue to be reviewed monthly as one step toward Robert Shiller's admonishment to "make conservative preparations for possible bad outcomes."
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. Prices and returns on equities in this article are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding or selling same.