- "The Dow® [adds a stock] if the company has an excellent reputation, demonstrates sustained growth, and is of interest to a large number of investors. Sector representation.is also a consideration."
- 30 Dow Dogs represent nine of eleven Morningstar Sectors. The Dow Tracks Utilities as a separate index and omits real estate. Broker target-estimated gains ranged 7.48%-17.89% topped by GE 10/26/17.
- Top dog by yield was VZ. The top-yield ten, MRK, PG, KO, CSCO, PFE, CVX, XOM, IBM, GE, & VZ averaged 2.53% yield.
- Dow top ten firms by broker target price upsides, MCD, UTX, PFE, UNH, INTC, DIS, V, AAPL, MSFT, & GE averaged 10.17% broker-estimated gains.
- $5k invested in the lowest-priced five top-yield Dogs of the Dow showed 12.4% more net gain than from $5k invested in all ten. Small Dogs again powered the October Dow.
Actionable Conclusion (1-10): Brokers Projected 7.5% To 17.9% Net Gains For Ten Dow Dogs To 2018
Four of ten top dividend-yielding Dow dogs were verified as being among the top ten of thirty gainers for the coming year based on analyst 1-year target prices. (They are tinted gray in the chart above). So, this yield-based forecast for Dow dogs, as graded by Wall St. wizards, was 40% accurate.
Ten probable profit-generating trades in YCharts for October 2018 showed:
General Electric (GE) was projected to net $178.87, based on dividends, plus a mean target price estimate from seventeen analysts, less broker fees. The Beta number showed this estimate subject to volatility 18% above the market as a whole.
Microsoft Corporation (MSFT) was projected to net $135.15, based on dividends, plus median target price estimates from thirty-two analysts, less broker fees. The Beta number showed this estimate subject to volatility 1% more than to the market as a whole.
Apple (AAPL) was projected to net $128.72, based on dividends, plus a mean target price estimate from thirty-eight analysts, less broker fees. The Beta number showed this estimate subject to volatility 27% more than the market as a whole.
Visa (V) was projected to net $114.81, based on a target price estimate from thirty-eight analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 6% less than the market as a whole.
Walt Disney (DIS) was projected to net $111.90, based on a median target estimates from thirty-two analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 40% more than the market as a whole.
Intel (INTC) netted $99.47 based on a target price estimate from forty-two analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 9% more than the market as a whole.
Pfizer (PFE) was projected to net $87.44, based on target price estimates from twenty-three analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 2% more than the market as a whole.
International Business Machines (IBM) was projected to net $84.82 based on dividends, plus a median target estimate from twenty-six brokers, less broker fees. The Beta number showed this estimate subject to volatility 3% under the market as a whole.
Merck (MRK) was projected to net $78.24, based on dividends, plus a mean target price estimate from twenty-two analysts, less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.
United Technologies (UTX) was projected to net $74.81, based on a median target price estimate from nineteen analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 4% more than the market as a whole.
The average net gain in dividend and price was estimated at 10.9% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 9% more than the market as a whole.
Actionable Conclusion (11): (Bear Alert) Analysts Expected One Dow Dividend Dog To Lose 3.9% By October, 2018
The probable losing trade revealed by Y-Charts for 2018 was:
3M Company (MMM) projected a loss of $38.63 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 9% more than the market as a whole.
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." More precisely, these are, in fact, best called, "underdogs".
October Dow 30 Index Dogs By Yield
Actionable Conclusion (12-21) 10 Top Dow Dividend Stocks By Yield Range 3.10% To 4.86% Per IndexArb & Range 3.03% To 4.83% Per YCharts
Top ten Dow dogs as of 10/26/17 by IndexArb-estimated yields represented seven of eleven Morningstar sectors. Top yielding stock, Verizon Communications (VZ)  was the lone communication services sector representative in the top ten.
Second top IndexArb Dow dog by yield was that lone industrials firm, General Electric (GE) .
Finally two consumer defensive representatives took eighth and ninth places, Coca-Cola Co. (KO) , and Procter & Gamble (PG)  to complete the top ten October Dow IndexArb-estimated dogs by yield.
Dow Dogs Dividend Vs. Price Results
Graphs below show the relative strengths of the top ten Dow dogs by yield as of market close 10/26/2017. The two sets of charts show the variation of dividends calculated by YCharts.com estimates and those from the arbitrage firm IndexArb.com.
Top ten Dow dogs show an overbought condition (in which aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k each in those ten). A dividend dogcatcher priority is to source stocks whose dividends from $1K invested exceed their single share price. Of the
Dow 30 Index, only GE and Pfizer currently meet that goal.
Actionable Conclusion (22): Dow Dogs Stay Overbought
The aggregate single share price for the top ten Dow dogs was 64% while the dividend derived from $10k invested as $1k in each of the ten was 36% of the combined totals per YCharts and by the IndexArb estimate.
This gap between high share price and low dividend per $1k (or oversold condition) means, no matter which chart you read, these are low risk and low opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend for October 26, 2017 was $27.35 per YCharts or $26.75 in the IndexArb reckoning.
Actionable Conclusions: (23-32) 4.97% To 15.38% Upsides To October, 2018; (33) Downside From Lowest Dog Was -3.88%.
To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high-yield "dog" metrics, analyst mean price target estimates provided another tool to dig out bargains.
Actionable Conclusions: Wall St. Brokers Calculated (34) A 5.29% Median Target Price Upside and (35) 6.97% Net Gain From 30 Dow Upside Dogs Come October 2018
Dow stocks were graphed above to show relative strengths by dividend and price as of October 26, 2017, and those projected by analyst mean price target estimates to the same date in 2018.
A hypothetical $1,000 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 gauged the stock price upsides and net gains including dividends, less broker fees, as of 2018.
Historic prices and actual dividends paid from $10,000 invested as $1k in each of the stocks and the aggregate single share prices of those ten stocks created data points for 2017. Projections based on estimated dividend amounts from $1,000 invested in the ten stocks and aggregate 1-year analyst target share prices from Yahoo Finance created the 2018 data points green for price and blue for dividend.
YChart analysts' median 1-year targets projected a 2.2% lower dividend from $10k invested as $1k in ten dogs in this group while aggregate single share price for those ten was projected to increase by 4.8% in the coming year. Notice, price over dividend in the coming year forecasts a continuing Dow oversold condition for the these top yield dogs in 2018.
The number of analysts contributing to the target price estimate for each stock was noted in the next to the last column on the charts. Three to nine analysts was optimal for a valid projection estimate. Estimates provided by one analyst were generally not applied (n/a).
A beta (risk) ranking for each stock was provided in the far right column of 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's movement opposite of market direction.
Analysts Forecast A 12.4% Advantage For 5 Highest Yield, Lowest Priced Dow Index Stocks To October 2018
Ten top Dow dogs were culled by yield for their monthly update. Yield (dividend / price) results verified by YCharts did the ranking.
As noted above, top ten Dow dogs selected 10/26/17 showing the highest dividend yields represented seven of eleven sectors constituting the index.
Actionable Conclusions: Analysts Expected (36) 5 Lowest-Priced of the Top Ten Highest-Yield Dow Dogs To Deliver 7.84% Vs. (37) 6.98% Net Gains by All Ten Come October, 2018
$5000 invested as $1k in each of the five lowest-priced stocks in the top ten Dow Dividend kennel by yield were predicted by analyst 1-year targets to deliver 12.4% more gain than $5,000 invested as $.5k in all of those ten. The very lowest priced Dow top yield dog, General Electric (GE), was projected to deliver the best net gain of 17.89%.
The five lowest-priced Dow top yield dogs for October 26 were: General Electric (GE); Cisco Systems (CSCO); Pfizer (PFE); Coca-Cola (KO); Verizon Communications (VZ), with prices ranging from $21.32 to $48.89.
Five higher-priced Dow dogs for October 26 were: Merck & Co. (MRK); Exxon Mobil (XOM); Procter & Gamble (PG); Chevron (CVX); International Business Machines (IBM), whose prices ranged from $61.99 to $153.60.
The distinction between five low-priced dividend dogs and the general field of ten reflected Michael B. O'Higgins' "basic method" for beating the Dow. The scale of projected gains based on analyst targets added 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. Caution is advised, since analysts are historically only 20% to 80% accurate on the direction of change and just 0% to 20% accurate on the degree of change.
See my instablog for specific instructions about how to best apply the dividend dog data featured in this article, this glossary instablog to interpret my abbreviated headings, and this instablog to aid your safe investing. --Fredrik Arnold
The net gain/loss 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.
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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 www.indexarb.com; YCharts.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in YahooFinance. Dog photo: seekingalpha.com
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Analyst’s Disclosure: I am/we are long CSCO, INTC, GE, PFE. 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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