Actionable Conclusions (1-10): Analysts Expect Net Gains of 23.2-41.57% Come December 2019 For Top 10 Dow Index Stocks
Five of the ten top "safer" dividend Dow dogs by yield (shaded in the chart above) were among the top ten gainers for the coming year based on analyst one-year target prices. Thus these December estimates were alleged to be 50% accurate by brokers.
Projections based on estimated dividend returns from $1,000 invested in each of the 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:
DowDuPont (DWDP) was estimated to net $415.68, based on the median of price estimates from twenty-three analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 50% above the market as a whole.
United Technologies (UTX) netted $412.88, based on estimates from nineteen analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 7% over the market as a whole.
Apple, Inc. (AAPL) netted $398.55, based on the median of target estimates from forty-four analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 20% more than the market as a whole.
Boeing Co. (BA) netted $324.02, based on the median of target prices set by twenty-one analysts, plus estimated dividends, less broker fees. The Beta number showed this estimate subject to volatility 30% over the market as a whole.
Chevron (CVX) netted $298.73, based on dividends, plus a median target price estimate from twenty-five analysts, less broker fees. The Beta number showed this estimate subject to volatility 13% more than the market as a whole.
Caterpillar, Inc. (CAT) netted $293.11, based on dividends, plus the median of target price estimates from twenty-seven analysts, less broker fees. The Beta number showed this estimate subject to volatility 60% over the market as a whole.
JPMorgan Chase & Co. (JPM) netted $270.92, based on the median of target estimates from twenty-nine analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 10% more than the market as a whole.
Microsoft Corp. (MSFT) netted $255.43, based on the median of target price estimates from thirty-three analysts, plus projected annual dividends, less broker fees. The Beta number showed this estimate subject to volatility 25% more than the market as a whole.
Cisco Systems (CSCO) netted $236.02, based on a median of the target estimate from thirty analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 16% more than the market as a whole.
UnitedHealth Group, Inc. (UNH) was shown to net $232.03 based on the median of estimates from twenty-four analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 34% below the market as a whole.
Average net gain in dividend and price was 31.37% on $10k invested as $1k in each of these ten Dow "safer" dividend stocks. This gain estimate was subject to average volatility 21% above the market as a whole.
The Dividend Dogs Rule
The "dog" moniker was earned by stocks exhibiting three traits: (1) Paying reliable, repeating dividends, (2) their prices fell to where, and (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as "dogs." More specifically, these are in fact best called "underdogs".
Nine of Eleven Sectors Show "Safer" Dividends In The Dow Index
Nine sectors are represented by the 24 "Safer" members of the Dow Industrials Index. Those 24 stocks showed positive annual returns and margins of cash to cover dividends by this screen as of December 28.
The "safer" dividend Dow index representation by sector broke out thus: Communication services (1); Energy (1); Healthcare (3); Financial Services (4); Consumer Defensive (2); Technology (4); Industrials (4); Basic Materials (1) and; Consumer Cyclical (4). The first eight of the nine sectors listed above were represented in the top ten Dow "safer" dividend group by yield.
Sectors not represented (by Dow index design) were real estate and utilities.
24 of 30 Dow Firms Reported "Safer" Dividends
Periodic Safety Inspection
A previous article discussed the attributes of all 30 Dow stocks.
You see grouped below the tinted list documenting 24 that passed the Dow dog "safer" check with positive past year returns and cash flow yield sufficient to cover their anticipated annual dividend yield. The margin of excess is shown in the bold face "Safety Margin" column. The total returns column screened out four with negative projections.
Financial priorities however are easily revised by boards of directors who amend company policies cancelling or varying the payout of dividends to shareholders. For example, Cisco Systems joined the Dow Industrial index in 2009 but only began paying quarterly dividends as of May 2011.
Venerable Procter & Gamble (PG) has not cut or reduced dividends but has carefully regulated their annual increases in slow business periods. Newbie Walgreens Boots Alliance (WBA) replaces GE (NYSE:GE) at the bottom of the list based on annual returns on equity. Yet another potential "too big to succeed" entity has joined the Dow.
Four additional columns of financial data, listed after the Safety Margin figures above, reveal payout ratios (lower is better), total annual returns, dividend growth levels, and P/E ratios for each stock. This data is provided to reach beyond yield to select reliable payout stocks. Positive results when appearing in all five columns after the annual yield are remarkably solid financial signals.
How Dow "Safer" Dividend Vs. Price Results Could Produce A "Fair Trade" Result For Investors
The charts above show the current dividend amount and the second chart 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, Pfizer (NYSE:PFE), and Verizon (NYSE:VZ) prices are currently within $13 of closing the gap between share price and dividend from $1k invested.
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" metric, analyst mean price target estimates became another tool to dig out bargains.
Yield Metrics Revealed No Bargains Among Lowest Priced Highest Yield "Safer" Dividend Dow Stocks Of December 28
Ten "Safer" dividend Dow firms with the biggest yields December 28 per YCharts data ranked themselves by yield as follows:
Actionable Conclusions: Analysts Estimated Five Lowest Priced of Ten "Safer" Dividend Dow Index Dogs (12) To Deliver 18.45% Vs. (13) 21.29% Net Gains From All Ten By December 28, 2019
$5,000 invested as $1k in each of the five lowest priced stocks in the "safe" ten Dow Index pack by yield were determined by analyst one-year targets to deliver 13.37% LESS gain than $5,000 invested as $.5k in all ten. The third lowest priced "safer" dividend Dow stock, DowDuPont, Inc. (DWDP), showed the best analyst-guessed net gain of 41.57% per broker one-year target estimates.
Lowest priced five "safer" dividend Dow stocks as of December 28 were: Cisco Systems, Pfizer, DowDuPont, Verizon Communications, and Procter & Gamble, with prices ranging from $42.77 to $91.18.
Higher priced five "Safer" Dividend Dow Index dogs as of December 28 were: JPMorgan Chase & Co., United Technologies, Chevron, Johnson & Johnson (JNJ), and 3M Co. (MMM), with prices ranging from $96.83 to $189.37. High price big dogs still rule the Dow! (If broker estimates are believable).
This distinction between five low priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed in his book, 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. It's also the work analysts got paid those 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.
The net gain estimates mentioned 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.
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
Stocks listed above were suggested only as possible starting points for your safest "Safer" Dow Index dog dividend stock 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.ycharts.com; www.finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo from: dow-jones-djia.com
Catch A Dog Of The Day on Facebook!
At 8:45 AM every NYSE trade day on Facebook/Dividend Dog Catcher, Fredrik Arnold does a video highlighting an Ivy portfolio candidate in his Underdog Daily Dividend Show!
Dow Index pups qualify! Find them among the 52 Dogs of the Week I, II, and III portfolios plus, the new portfolio named Ivy (IV)! Click here to subscribe or get more information.
Always remember: Root for the Underdog. Comment on any stock ticker to make it eligible for my next FA follower report.
Disclosure: I am/we are long CSCO, 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.