The Bow Wow Dow: IBM Tops By Yield; DowDuPont Tops Broker Targets

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Includes: CVX, DIS, DWDP, GS, HD, IBM, JPM, KO, MMM, MSFT, PFE, PG, UTX, VZ, WMT, XOM
by: Fredrik Arnold
Summary

30 Dow stocks represent nine of eleven Sectors. Dow Tracks utilities as a separate index and omits real estate. Broker top ten target-estimated net-gains ranged 10.06%-19.6% topped by DowDupont 2/26/19.

Top Dow dog by yield was IBM. The top-yield-ten, MMM, PG, HD, JPM, PFE, KO, CVX, XOM, VZ, & IBM averaged 3.7% yield. These are the Bow-Wow Dow 2/26/2019.

Dow top ten firms by broker target price upsides, JPM, WMT, DIS, UTX, MSFT, KO CVX, UNH, GS, & DWDP averaged 13.19% broker-estimated price gains.

Analyst one-year targets predicted that ten highest yield Dow stocks could produce 3.32% LESS gain from $5k invested in the lowest-priced five than from $5k in all ten. High-priced "big" dogs led the broker-augured Dow Index for February.

Actionable Conclusions (1-10): Brokers Predicted 10.06% To 19.6% Net Gains For Ten Dow Dogs By Late February 2020

Three 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 below). So, our February yield-based forecast for Dow dogs, as graded by Wall St. wizards, was 30% accurate.

Source: YCharts.com

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 2019-20 data points. Note: one year target prices by lone analysts were not applied. Ten probable profit-generating trades projected to February 26, 2020 were:

DowDuPont (DWDP) was projected to net $196.00, based on a median target estimates from twenty-four analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 31% more than the market as a whole.

Chevron Corp (CVX) was projected to net $157.76, based on dividends, plus a mean target price estimate from twenty-four analysts, less broker fees. The Beta number showed this estimate subject to volatility 2% over the market as a whole.

Goldman Sachs Group Inc (GS) was projected to net $151.95, based on dividends, plus a mean target price estimate from twenty-nine analysts, less broker fees. The Beta number showed this estimate subject to volatility 22% more than the market as a whole.

Coca-Cola Co (KO) was projected to net $149.84 based on dividends, plus a median of target estimates from twenty-four brokers, less broker fees. The Beta number showed this estimate subject to volatility 47% under the market as a whole.

UnitedHealth Group Inc (INH) netted $143.32 based on a target price estimate from twenty-five analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 14% less than the market as a whole.

United Technologies Corp (UTX) was projected to net $122.70, based on dividends, plus a mean target price estimate from twenty-one analysts, less broker fees. The Beta number showed this estimate subject to volatility 17% more than the market as a whole.

Microsoft Corp (MSFT) was projected to net $117.77, based on dividends, plus the median of target price estimates from thirty-four analysts, less broker fees. The Beta number showed this estimate subject to volatility q7% more than the market as a whole.

JPMorgan Chase & Co (JPM) was projected to net $112.11, based on a median target price estimate from twenty-nine analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 11% more than the market as a whole.

Walmart Inc (WMT) was projected to net $105.95 based on the median of target price estimates from thirty-three analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 67% less than the market as a whole.

Walt Disney Co (DIS) was forecast to net $100.62, based on target price estimates from twenty-one analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 4% less than the market as a whole.

The average net gain in dividend and price was estimated at 13.58% on $10k invested as $1k in each of these ten Dow stocks. This gain estimate was subject to average volatility 3% under the market as a whole.

Source: wallpapersafari.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 February 26, 2019 Dow 30 Index By Yield

Source: YCharts.com and indexArb.com

Actionable Conclusion (11-20) 10 Top Dow Dividend Stocks By Yield Range 2.75% To 4.49% Per YCharts & Range 2.79% To 4.70% Per IndexArb

Top ten Dow dogs as of 2/26/19 by both YCharts and IndexArb represented eight of eleven Morningstar sectors. Both listed the same top ten stocks with the second and third and eight and ninth selections reversed.

Top yielding stock, International Business Machines Corp (IBM) [1] was the lone technology sector representative in the top ten.

Second and third places revolved between an energy and a communication services firm. Ycharts put Verizon (VZ) [2] second and Exxon Mobil (XOM) [3] third, while IndexArb.comlisted the same two in the opposite order.

Fourth place went to the same energy representative on both lists, Chevron Corp (CVX) [4], while consumer defensive Coa Cola (KO) [5] placed fifth, healtchcare, Pfizer (PFE) [6] was sixth, and financial services JPMorgan Chase (JPM) [7] paced seventh.

A consumer cyclical and consumer defensive stock traded eight an ninth places on the YCharts vs IndexArb lists Ycharts listed Home Depot (HD)[8] the Consumer Cyclical retailer eighth and Procter and Gamble [9], the consumer defensive home products provider ninth. IndexArb reversed the order of those two.

Dividend Vs. Price Results

Graphs above show the relative strengths of the top ten Dow dogs by yield as of market close 2/26/2019. 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. In the Dow 30 Index, none any longer meet that goal.

However, four Dow Dogs are within range of shedding prices just 25% or less to meet the goal. Verizon at $56.64 needs to drop 13.3% to $49.08. Coca-Cola Co just needs to shed 10.5% to drop from $44.69 to $40.00 to see dividend yield from $1K invested exceed the single share price. Pfizer at $43.02 is within 11.8% of $37.94 to make goal. Finally, Cisco at $51.18 only needs to drop 24.9% to $37.40 to become a decent dividend payer.

Actionable Conclusion (21): Dow Dogs Stay Overbought

The aggregate single share price for the top ten Dow dogs was 75% per YCharts and 75% for IndexArb, while the dividend derived from $10k invested as $1k in each of the ten was 25% per YCharts and 25% for IndexArb.

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 February 26, 2019 was $29.31 per YCharts or $28.45 in the IndexArb reckoning.

Price Drops of 10% to 55% Could Get Dow Dogs Back to Normal "Fair Trade" Rates 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 Exxon, Verizon, Coca-Cola, Pfizer, and Cisco prices are currently within $25 of closing the gap between share price and dividend from $1k invested.

Source: YCharts.com

Actionable Conclusions: (22-31) Dow Shows 10.17% To 18.88% Top Ten Upsides To February 26, 2020; (32) Two Downsides Were 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 3.32% Disadvantage For 5 Highest Yield, Lowest Priced Of 10 Dow Index Dogs To February 26, 2020

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 2/26/19 revealing the highest dividend yields represented eight of the eleven sectors in Y-Charts and IndexArb reckonings.

Actionable Conclusions: Analysts Expected 5 Lowest-Priced of the Ten Highest-Yield Dow Dogs (33) To Deliver 7.30% Vs. (34) 7.56% Net Gains by All Ten Come February 26, 2020

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 3.32% LESS gain than from $5,000 invested in all ten. The seventh lowest priced Dow top yield dog, Chevron Corp (NYSE:CVX), was projected to deliver the best net gain of 15.78%.

Source: YCharts.com

The five lowest-priced Dow top-yield dogs for February 26 were: Pfizer (PFE); Coca-Cola (KO); Verizon Communications (VZ); Exxon Mobil (XOM); Procter & Gamble (PG), with prices ranging from $43.02 to $99.83.

Five higher-priced Dow dogs for February 26 were: JPMorgan Chase & Co (JPM); Chevron (CVX); International Business Machines (IBM); The Home Depot Inc (HD); 3M Co (MMM), whose prices ranged from $105.29 to $209.38.

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. (In 2017 the market somewhat followed analyst sentiment. In 2018 analysts estimates were contrarian indicators of market performance.)

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:wallpapersafari.com

Disclosure: I am/we are long CSCO, PFE, INTC. 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.