Your Dogs Of The Dow Early December Update From The Dividend Dogcatcher

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Includes: AAPL, BA, CAT, CSCO, CVX, DD, GS, HD, IBM, JPM, KO, LBM, MRK, PFE, PG, UTX, V, VZ, XOM
by: Fredrik Arnold
Summary

"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 stocks represent nine of eleven Sectors. Dow Tracks utilities as a separate index and omits real estate. Broker target-estimated net-gains ranged 16.65%-44% topped by Goldman as of 12/5/18.

Top Dow dog by yield was IBM. The top-yield ten, CSCO, MRK, JPM, CAT, PFE, PG, KO CVX, XOM, VZ, & IBM averaged 3.51% yield.

Dow top ten firms by broker target price upsides, HD, V, CVX, BA, UTX, CAT, IBM, INTC, APLE, DWDP, & GS averaged 26.26% broker-estimated price gains.

Analyst one-year targets predicted that ten highest yield Dow stocks could produce 55.6% less gain from $5k invested in the lowest-priced five than from $5k in all ten. High-priced "big" dogs led the Dow again.

Source: YCharts.com

Actionable Conclusions (1-10): Brokers Predicted 16.65% To 44% Net Gains For Ten Dow Dogs By December, 2019

Two of ten top dividend-yielding Dow dogs were verified as being among the top ten gainers for the coming year based on analyst 1-year target prices. (They are tinted gray in the chart above). So, our yield-based forecast for Dow dogs, as graded by Wall St. wizards, was 20% accurate.

Projections based on estimated dividend returns from $1000 invested in the ten highest yielding stocks and their aggregate one year analyst median target prices, as reported by YCharts, created the 2018-19 data points. Note: one year target prices by lone analysts were not applied. Ten probable profit-generating trades projected to December, 2019 were:

Goldman Sachs Group (GS) was forecast to net $440.04, based on target price estimates from twenty-seven analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 10% more than the market as a whole.

DowDuPont (DWDP) was projected to net $338.12, based on a median target estimates from twenty-one analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 50% more than the market as a whole.

International Business Machines (LBM) was projected to net $317.01, based on dividends, plus a mean target price estimate from twenty analysts, less broker fees. The Beta number showed this estimate subject to volatility 20% over the market as a whole.

Apple Inc (AAPL) was projected to net $282.39, based on dividends, plus the median of target price estimates from forty-three analysts, less broker fees. The Beta number showed this estimate subject to volatility 35% less than the market as a whole.

Caterpillar (CAT) was projected to net $256.99, based on dividends, plus a mean target price estimate from twenty-seven analysts, less broker fees. The Beta number showed this estimate subject to volatility 61% more than the market as a whole.

United Technologies Corp (UTX) was projected to net $250.79, based on dividends, plus a mean target price estimate from nineteen analysts, less broker fees. The Beta number showed this estimate subject to volatility 7% more than the market as a whole.

Chevron (CVX) was projected to net $233.67, based on a median target price estimate from twenty-four analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 13% more than the market as a whole.

Boeing Co (BA) was projected to net $222.74 based on dividends, plus a median of target estimates from twenty-two brokers, less broker fees. The Beta number showed this estimate subject to volatility 30% above the market as a whole.

The Home Depot Inc (HD) netted $170.07 based on a target price estimate from thirty-five analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 26% more than the market as a whole.

Visa Inc (V) was projected to net $166.53 based on the median of target price estimates from thirty-six analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 1i% more than the market as a whole.

The average net gain in dividend and price was estimated at 26.78% on $10k invested as $1k in each of these ten Dow stocks. This gain estimate was subject to average volatility 25% above the market as a whole.

Source: hdanimalswallpapers.com

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".

The December Dow 30 Index By Yield

Source: YCharts.com and indexArb.com

Actionable Conclusion (11-20) 10 Top Dow Dividend Stocks By Yield Range 3% To 4.94% Per YCharts & Range 3.06% To 5.05% Per IndexArb

Top ten Dow dogs as of 12/5/18 by YCharts and IndexArb represented seven of eleven Morningstar sectors. Both listed the same top ten but in different order just varying one place in three instances.

Top yielding stock, International Business Machines Corp (IBM) [1] was the top of two technology sector representatives in the top ten. The other tech issue placed tenth by YCharts and ninth by IndexArb, Cisco Systems (CSCO) [10] [9].

Second and third places were traded beteen, energy firm Exxon Mobil (XOM) [3][2] and the lone communication services representative in the index, Verizon communications (VZ) [2][3].

Fifth place went to the top consumer defensive representative, Coca-Cola (KO)[5], placing sixth per YCharts and seventh, per Index Arb was the other consumer defensive rep, Procter & Gamble (PG) [6][7].

Fourth places went to the other energy representative in the top ten, Chevron, (CVX) [4], on both lists and a consumer defensive stalwart placed fifth, Coca-Cola Co [5].

The lone healthcare representative in the top ten placed eighth per YCharts and seventh per Index Arb, Pfizer (PFE) [8][7].

Sixth and seventh places were traded amongst the other consumer defensive representative, Procter & Gamble Co (PG) [6][7], and the first of two healthcare stocks, Pfizer (PFE) [7][6].

The lone financial services representative, placed eighth in both lists, JPMorgan Chase & Co (JPM) [8]. However the last two slots were traded amongst the remaining healthcare and technology representatives. The last healthcare representative in the top ten placed ninth on the Ycharts list and tenth for IndexArb, Merck & Co Inc (MRK) [9][10], while the technology entrant was tenth on YChats and ninth on IndexArb, Cisco Systems Inc (CSCO) [10][9], to complete the YChart and IndexArb December top ten list of Dow dogs by yield.

Source: YCharts.com

Dow Dog Dividend Vs. Price Results

Graphs above show the relative strengths of the top ten Dow dogs by yield as of market close 10/23/2018. 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 exceeds 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. On the Dow 30 Index, none any longer meet that goal.

Actionable Conclusion (21): Dow Dogs Stay Overbought

The aggregate single share price for the top ten Dow dogs was 69% per YCharts and 69% for IndexArb, while the dividend derived from $10k invested as $1k in each of the ten was 31% by both estimates.

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 December 5, 2018 was $27.53 per YCharts or $26.57 in the IndexArb reckoning.

How Dow Dog Dividend Vs. Price Results Could Get Back to A Normal "Fair Trade" Price For Investors

Source: YCharts.com

The chart above assumes the current dividend amount and adjusts share price to produce a yield (from $1K invested) to exceed the single share price of each stock. As you can see, only Cisco and Pfizer prices are currently within $13 of closing the gap between share price and dividend from $1k invested.

Source: YCharts.com

Actionable Conclusions: (22-31) Dow Shows 16.66% To 44.27% Top Ten Upsides To October, 2019; (32) Two Downsides Noted Per Broker 1 Yr. Targets

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.

Analysts Forecast A 55.6% Disadvantage For 5 Highest Yield, Lowest Priced Dow Index Dogs To December 2019

Ten top Dow dogs were culled by yield for their monthly update. That is, Yield (dividend / price) results as verified by YCharts did the ranking.

Source: YCharts.com

As noted above, top ten Dow dogs selected 12/5/18 showing the highest dividend yields represented seven of eleven sectors in Y-Charts and IndexArb reckonings of the index.

Actionable Conclusions: Analysts Expected 5 Lowest-Priced of the Top Ten Highest-Yield Dow Dogs (33) To Deliver 4.71% Vs. (34) 10.62% Net Gains by All Ten Come December, 2019

Source: YCharts.com

$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 55.6% LESS than from $5,000 invested in all ten. The tenth lowest priced Dow top yield dog, International Business Machines Corp (IBM), was projected to deliver the best net gain of 31.7%.

Source: YCharts.com

The five lowest-priced Dow top yield dogs for December5 were: Pfizer (PFE); Cisco Systems (CSCO); Coca-Cola (KO); Verizon Communications (VZ); Merck & Co Inc (MRK), with prices ranging from $45.14 to $78.21.

Five higher-priced Dow dogs for December 5 were: Exxon Mobil (XOM); Procter & Gamble (PG); JPMorgan Chase & Co (JPM); Chevron (CVX); International Business Machines (IBM), whose prices ranged from $79.43 to $121.60.

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.

Stocks listed above were suggested only as possible reference points for your Dow dividend dog stock purchase or 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 www.indexarb.com; YCharts.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in YahooFinance. Dog photo: hdanimalswallpapers.com

Disclosure: I am/we are long CISCO, INTC, 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.