The Dividend Dogs Rule
Stocks earned the "dog" moniker by 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 Are Loaded With Energy
David Fish's Dividend Contenders closing prices August 4 were paired with annual dividends projected by dripinvesting.org as of July 29. 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 7.06% to 10.55%.
Actionable conclusions by yield, target price upsides and net gains were drawn below as top Contender dogs for August were discussed, step by step. Energy dogs carried the load.
Actionable Conclusion (1) 10 Contender Dogs Yield as of August 10 Averaged 8.53%
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 Define 50 Contender Stocks by Yield
David Fish's Contenders list (from here) as of August 4 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 7/29 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.]
Leading the Contender contingent was StoneMor Partners LP (NYSE:STON)  from the services [consumer cyclical] business sectors.
Basic Materials [energy] captured all but the first, seventh, and eighth slots: Williams Companies (NYSE:WMB) ; Plains All American Pipeline LP (NYSE:PAA) ; DCP Midstream Partners LP (DPM) ; Genesis Energy LP (NYSE:GEL) ; ONEOK Partners LP (OKS) ; TC Pipelines LP (NYSE:TCP) ; Energy Transfer Equity LP (ETE) .
Finally, the two remaining non-basic [energy] sector firms placed seventh, and eighth: AmeriGas Partners LP (NYSE:APU)  the utility; Vector Group Ltd. (NYSE:VGR)  of consumer goods [consumer defensive], to complete the top ten contender dogs of August by yield.
Contenders Dividend vs. Price Results Out-Charged Dow Dogs
Periodic strength of ten top Contenders by yield, graphed below as of 9/4/2016 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 Mixed Up
Top ten dividend from $10k invested as $1k in each Contender dog fell 0.55% as aggregate single share price increased 3.33% after July. The Contenders slightly reduced the distance to an overbought condition. Between July 8 and August 5, the dividend gap shrank from 1.7 to 1.6 times more than the price of the stocks.
Dow dogs, however, mixed up through July, as aggregate single share price for those ten increased simultaneously with dividends. Between July 8 and August 4 price inclined 0.8%, while annual dividend (from $10k invested as $1K in each of the top ten) rose 0.45% 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 slightly.
Actionable Conclusion (4): Dow Dogs Carry On As Overbought
Historically, as of September, 2015, 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 price over dividend 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%. A 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 gap down to $350 or 91% and June put the gap at $342 or 90%. The July surge-resulting gap was $414 or 114%. August pushed it to $418 but still 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 hit $27.27
Compared to the DOW, the Contender ten in 2015 progressively retreated to end the year in a pattern where aggregate dividend value of $1k investments in each steadily rose above the aggregate single share price. However, since February 2016, the two data points have moved closer together. Recently, in greater contrast to the Dow, Contender Dog top ten average price per dollar of annual dividend was $11.92 as of August 4.
If Dow prices can decline about 35%-40% 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. If Dow prices ever plunge, their dividends would be attractive again.
Actionable Conclusions: (5) Ten Contender Dogs Showed 15.3% Average Upside, While (6) Six Dropped To A 6.1% Downside Estimated August 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 Estimated (7) 5.23% Upside & (8) 9.76% Net Gain Averaged from Top 30 Dividend Contenders As Of August, 2017
Top thirty dogs from David Fish's Dividend Contenders list were graphed below as of August 4, 2016 and 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 5.3% lower dividend from $30K invested as $1k in each stock in this group while aggregate single share price was projected to increase 3.83% 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): Dividend Contender Dogs Could Net 13.8% to 36.45% By August 2017
Four 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 40% accurate.
Ten probable profit generating trades were revealed by Thomson/First Call in Yahoo Finance into 2017:
StoneMor Partners LP was projected to net $364.49 based on dividends plus median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 56% less than the market as a whole.
Genesis Energy LP was projected to net $276.48 based on dividends plus the median target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 27% more than the market as a whole.
Enterprise Products Partners (NYSE:EPD) was projected to net $272,97 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.
Murphy Oil Corp. (NYSE:MUR) was projected to net $179.11 based on dividends plus the median rates of seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 160% more than the market as a whole.
Holly Energy Partners LP (NYSE:HEP) was projected to net $168.22 based on dividends plus median target price estimate from five analysts less broker fees. The Beta showed this estimate subject to volatility 19% less than the market as a whole.
Transmontaigne Partners LP (NYSE:TLP) was projected to net $165.99 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 91% less than the market as a whole.
Plains All American Pipeline LP was projected to net $155.21 based on dividends plus the lowest of annual price estimates from twenty-one analysts less broker fees. The Beta number showed this estimate subject to volatility 12% less than the market as a whole.
Magellan Midstream Partners (NYSE:MMP) was projected to net $150.94 based on a median target price estimate from seventeen analysts combined with dividends less broker fees. The Beta number showed this estimate subject to volatility 29% less than the market as a whole.
TC Pipelines LP was projected to net $143.98 based on a median target price estimate from nine analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole.
Spectra Energy Partners (NYSE:SEP) was projected to net $137.91 based on dividends plus the annual price estimate from nineteen analysts less broker fees. The Beta number showed this estimate subject to volatility 18% less than the market as a whole.
The average net gain in dividend and price was 20.14% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 6% less than the market as a whole.
Actionable Conclusion (10): (Bear Alerts) Analysts Anticipated Three Contender Dogs To Show Net Losses Averaging 4.89% By 2017
Probable losing trades revealed by Thomson/First Call in Yahoo Finance in 2017 were:
Welltower Inc. (HCN) was projected to lose $23.60 based on dividend and a median target price estimate from sixteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 84% less than the market as a whole.
People's United Financial (NASDAQ:PBCT) was projected to lose $46.53 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 10% less than the market as a whole.
National Health Investors (NYSE:NHI) was projected to lose $76.53 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.
The average net loss in price plus broker fees including annual dividends was projected to be 4.89% on $5k invested as $1k in each of these five dogs. This loss estimate was subject to average volatility 45% less than the market as a whole.
Actionable Conclusion (11): "If Everyone Told The Truth, The Market Would Not Move": STON vs. NHI Price History
Year to date price performance of STON, the Contender portfolio "loser" red-lined by analysts, showed a strong upside in contrast to the neutral to negative price history demonstrated by analyst tagged upside leader, STON.
Momentum worked against these analyst projections.
Dog Metrics Found More Bargains
Yield (dividend / price) results from Yahoo.com and dripinvesting.org for Contender dividend stocks as of market closing prices August 5 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 Showed Analysts 16.09% VS. (13) 14.24% Net Gains by All Ten Come August, 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 12.94% 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 36.45%.
Lowest priced five contenders dogs for August 4 were: Energy Transfer Equity LP; Vector Group Ltd.; Williams Companies; StoneMor Partners LP; Plains All American Pipeline LP, with prices ranging from $16.14 to $27.91.
Higher priced five contender dogs for August 4 were: DCP Midstream Partners LP; Genesis Energy LP; ONEOK Partners LP; AmeriGas Partners LP; TC Pipelines LP, whose prices ranged from $33.49 to $52.20.
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 Mid- August 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 mid-August 2015 vs. 2016 was six losses, and four gains. Two small dogs were gainers, as were two big Contender dogs gainers. O'Higgins basic method completed this test at only a 40% success rate.
Stocks listed above were suggested only as reference points for your own Contender dog stock investigation in early August, 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 50 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, & the soon to be announced Q3 August pick, 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; YCharts.com; analyst mean target prices by Thomson/First Call in Yahoo Finance. Dog photo: ssa.gov.
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.