Dividend Dog Defined
The "dog" moniker was earned by stocks exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as "dogs."
Contender Dogs Peak Out As July Dog Days Loom
David Fish's Dividend Contenders closing prices of July 8 were paired with annual dividends projected by dripinvesting.org as of June 30. That data (charted below) showed four of nine Yahoo business sectors represented by top ten Contenders by yield: basic materials (7), services (1), utilities (1), and consumer goods (1). In the Morningstar scheme of eleven sectors, four were covered: energy (7); utility (1); consumer cyclical (1); consumer defensive (1). These top ten stocks posted yields from 6.89% to 12.2%.
Actionable conclusions by yield, target price upsides and net gains were drawn below as top Contender dogs for June/July were followed, step by step.
Actionable Conclusion (1) 10 Dividend Contender Dogs Yield Averaged 8.58% as of July 8
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; NASDAQ 100; Russell 1000; Russell 2000; Champions; Contenders; Challengers; CCC Combined; and Global. Bonus reports cover Bad Boy AllStars, and Sector Leaders.
Fifty For Money
This article was written to reveal bargain dividend 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. Utilizing analyst price upside estimates has expanded the stock universe to include popular growth equities, as desired.
Dog Metrics Cast 50 Contender Stocks by Yield
David Fish's Contenders list (from here) as of July 8 paid increasing dividends for 10 to 24 years. Contender stocks listed below were rated by yield to reveal the top ten. Price data was sourced from Yahoo.com. Annual dividend calculations as of 6/30 came from dripinvesting.org.
As mentioned above, four of nine Yahoo Finance market sectors were represented on the top ten contenders dog list selected by yield: basic materials, services, utilities, and consumer goods. [Four were covered in the eleven sector scheme: energy; utilities; consumer cyclical; consumer defensive.]
Basic Materials [energy] captured all but the second, fifth, and eighth slots: Williams Companies (NYSE:WMB) ; Plains All American Pipeline LP (NYSE:PAA) ; DCP Midstream Partners LP (DPM) ; ONEOK Partners LP (NYSE:OKS) ; Energy Transfer Equity LP (NYSE:ETE) ; Sunoco Logistics Partners LP (NYSE:SXL) ; TC Pipelines LP (NYSE:TCP) .
Finally, three non-basic [energy] sector firms placed second, fifth, and eighth: StoneMor Partners LP (NYSE:STON)  from services [consumer cyclical]; AmeriGas Partners LP (NYSE:APU)  the utility; Vector Group Ltd. (NYSE:VGR)  of consumer goods [consumer defensive], completed the top ten contender dogs by yield in June/July.
Contenders Dividend vs. Price Results Contrasted With Dow Dogs
Periodic strength of ten top Contenders by yield, graphed below as of 7/8/2016 was 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 history of those ten stocks created the data points shown in green for price and blue for dividend.
Actionable Conclusions: (2) Contenders Charged Bullishly, As (3) Dow Dogs Did Likewise
Contender top ten dividend from $10k invested as $1k in each dog fell 8.6% as aggregate single share price increased 9.5% after May. The Contenders further shrank the distance to an overbought condition. Between May 26 and July 8, the gap moved from 3.25 to 1.7 times more than the aggregated single share price of those stocks.
Dow dogs also charged through June into July, as aggregate single share price for those ten soared 16% between May 26, and July 8. Meanwhile annual dividend from $10k invested as $1K in each of the top ten dropped 6.4% according to IndexArb.
As a result, the Dow dogs overbought condition (where aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k each in those ten) expanded greatly after Mayl.
Actionable Conclusion (4): Dow Dogs Get Increasingly Overbought
Historically, to begin August, 2015, IBMs high price and dividend entrance pushed the Dow overbought gap to $343 or 89%. As September dawned, nearly all ten dogs dropped in price to temporarily shrink the gap to $273 or 67%. October saw prices rise and dividend fall to move the price over dividend chasm to $305 or 76%. November 6 price action and top dog shuffle put the gap at $305 or 79%. As of December 4 the gap stood at $302 or 78%.
Come January 8, 2016, prices of the ten Dow top dogs fell, and dividends rose, to push the overbought gap down to $224 or 56%. In February the gap grew to $246 or 59%. The March charge put the gap up to $293 or 73%. April set a 2016 record expanding to $400 or 104%, May's price retreat brought the price over dividend gap down to $350 or 91% and June put the gap down to $342 or 90%. The July surge was led first, by heavyweight ExxonMobil (NYSE:XOM) muscling little General Electric (NYSE:GE) out on the tenth slot by yield. Then, JPMorgan Chase (NYSE:JPM) pushed Merck (NYSE:MRK) out of the ninth slot. The resulting gap between aggregate single share price of ten dogs above dividends projected from $10K invested as $1K per each of the ten was $414 or 114%.
The Dow Dogs remain overbought and overpriced. Meaning, these are low risk and low opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend was $27.30
Compared to the DOW, the Contender ten in 2015 progressively retreated in a pattern where aggregate dividend value of $1k investments in each steadily rose above the aggregate single share price. Since February 2016, the two data points have moved 1closer together. And, in great contrast to the Dow, Contender Dog top ten average price per dollar of annual dividend was $10.97 as of July 8.
If Dow prices can decline about 40-45% they could again become attractive dividend buys! As it stands, the Dow has become an index of growth stocks as their dividends have been progressively devalued by the marketplace. Should Dow prices plunge, resulting dividends would be valuable again.
Actionable Conclusions: (5) Ten Contender Dogs Showed 13.66% Average Upside, While (6) Five Dropped To A 8.28% Downside By July 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 used to dig out bargains.
Actionable Conclusions: Wall St. Analysts Envisioned (7) 2.87% Average Upside & (8) 7.81% Average Net Gain from Top 30 Dividend Contenders By July, 2017
Top thirty dogs from David Fish's Dividend Contenders list were graphed below as of July 8, 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 predicted annual dividend amounts to find the return.
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 thirty stocks divided by 3 created data points for 2016. Projections based on estimated increases in dividend amounts from $1000 invested in the thirty 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 3.3% lower dividend from $30K invested as $1k in each stock in this group while aggregate single share price was projected to increase 1.67% 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 (9): Analysts Advised Ten Dividend Contender Dogs Could Net 12.29% to 36.46% By Early-July 2017
Five of ten top dividend yielding Contender dogs were among the ten gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy as graded by Wall St. wizards was 50% accurate.
Ten probable profit generating trades were revealed by Thomson/First Call in Yahoo Finance into 2017:
StoneMor Partners LP was projected to net $364.55 based on dividends plus median target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 54% less than the market as a whole.
Williams Companies was projected to net $293.01 based on dividends plus the median target price estimate from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 46% more than the market as a whole.
Sunoco Logistics Partners was projected to net $210.99 based on dividends plus the median rates of seventeen analysts less broker fees. The Beta showed this estimate subject to volatility 9% less than the market as a whole.
Spectra Energy Partners (NYSE:SEP) was projected to net $192.66 based on dividends plus the annual price estimate from eighteen analysts less broker fees. The Beta number showed this estimate subject to volatility 18% less than the market as a whole.
Enterprise Products Partners (NYSE:EPD) was projected to net $170.36 based on a median target price estimate from twenty-six analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 16% less than the market as a whole.
Omega Healthcare Investors (NYSE:OHI) was projected to net $150.83 based on dividends plus median target price estimate from eight analysts less broker fees. The Beta showed this estimate subject to volatility 56% less than the market as a whole.
Energy Transfer Equity LP was projected to net $144.31 based on dividends plus the lowest of annual price estimates from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 84% more than the market as a whole.
Transmontaigne Partners LP (NYSE:TLP) was projected to net $133.77 based on dividends plus the median of annual price estimates from three analysts less broker fees. The Beta number showed this estimate subject to volatility 90% less than the market as a whole.
TC Pipelines LP was projected to net $133.37 based on a median target price estimate from eight analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 3% more than the market as a whole.
Buckeye Partners LP (NYSE:BPL) was projected to net $122.94 based on a median target price estimate from ten analysts combined with dividends less broker fees. The Beta number showed this estimate subject to volatility 5% more than the market as a whole.
The average net gain in dividend and price was 19.17% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 10% less than the market as a whole.
Actionable Conclusion (10): (Bear Alerts) Analysts Predicted Five Contender Dogs Showing Net Losses Averaging 5.14% By 2017
Probable losing trades revealed by Thomson/First Call in Yahoo Finance in 2017 were:
People's United Financial (NASDAQ:PBCT) was projected to lose $30.11 based on dividend and a median target price estimate from nine analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 14% less than the market as a whole.
Welltower Inc. (NYSE:HCN) was projected to lose $35.40 based on dividend and a median target price estimate from fifteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 84% less than the market as a whole.
Southern Company (NYSE:SO) was projected to lose $55.09 based on dividend and a median target price estimate from fifteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 88% less than the market as a whole.
National Health Investors (NYSE:NHI) was projected to lose $55.26 based on dividend and a median target price estimate from five analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 42% less than the market as a whole.
ONEOK Inc. (NYSE:OKE) was projected to lose $81.23 based on dividend and a median target price estimate from fifteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 35% more than the market as a whole.
The average net loss in price plus broker fees including annual dividends was predicted to be 5.14% on $5k invested as $1k in each of these five dogs. This loss estimate was subject to average volatility 39% less than the market as a whole.
Actionable Conclusion (11): "If Everyone Told The Truth, The Market Would Not Move:" GILD vs. PAYX Price History
Year to date price performance of OKE, the Champion portfolio "loser" red-lined by analysts, showed a mighty upside in contrast to the negative price history for analyst tagged upside leader, STON.
Momentum was not on the side of these analyst projections.
Dog Metrics Detected More Bargains
Yield (dividend / price) results from Yahoo.com and dripinvesting.org for Contender dividend stocks as of market closing prices July 8 did the ranking.
As noted above, four of nine Yahoo Finance market sectors [or eleven Morningstar sectors] were represented in the top ten contenders dog list selected by yield below: basic materials [energy]; services [consumer cyclical]; utilities; consumer goods [consumer defensive].
Actionable Conclusions: (12) 5 Lowest Priced of Top Ten Highest Yield Contender Dogs Promised 17.75% VS. (13) 13.37% Net Gains by All Ten by July 8, 2017
$5000 invested as $1k in each of the five Lowest priced stocks in the top ten contenders dividend kennel by yield were alleged by analyst 1 year targets to deliver 32.74% more net gain than the same amount invested in all ten. The fourth lowest StoneMor Partners LP , was projected to deliver the best net gain of 36.46%.
Lowest priced five contenders dogs for July 8 were: Energy Transfer Equity LP; Williams Companies; Vector Group Ltd.; StoneMor Partners LP; Plains All American Pipeline LP, with prices ranging from $15.58 to $27.32.
Higher priced five contenders dogs for July 8 were: Sunoco Logistics Partners LP; DCP Midstream Partners LP; ONEOK Partners LP; AmeriGas Partners LP; TC Pipelines LP, whose prices ranged from $28.40 to $51.64.
This distinction between five low priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed for beating the Dow.
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.
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.
Annual Analyst Accuracy
You see below the one year result of ten analyst target estimates for Contender stocks per YahooFinance data covering this article from Early July in 2015. These graded the "basic method" Michael B. O'Higgins employed for beating the Dow. The key shows: losses in a reddish tint; poor results tinted yellow; gains tinted green; no tint means no difference.
The "basic method" top ten annual analyst accuracy score for The Top Ten Contenders by yield between early-July 2015 vs. 2016 was six losses, and four gains. One small dog was a gainer, three big dogs were gainers. O'Higgins basic method failed this test.
The stocks listed above were suggested only as reference points for a Contender dog stock investigation in early July, 2016. These were not recommendations.
See my instablog for specific instructions about how to best use the dividend dog data featured in this article.--Fredrik Arnold
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.
Five of these Contender pups qualify as valuable catches! They are listed with the now 47 Dogs Of The Week (DOTW) found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information.
A top performing DOTW dog for the first quarter has been named. A second quarterly winner was discovered May 13.
For a free copy of both quarterly reports and analysis of the winning Arnold Q1, Q2, & coming Q3 August picks, send your e-mail address, ticker symbol for your favorite dividend stock, and name of your favorite team of any sport or activity to: firstname.lastname@example.org. Remember: E-mail, ticker, team!
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 starting points for your index dog dividend stock purchase/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 indexarb.com; analyst mean target prices by Thomson/First Call in Yahoo Finance.
Disclosure: I am/we are long GE, CSCO, INTC, 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.