Dow Dogs Digging: Listing The Top Stocks By Yield And Net Gains For June

|
Includes: AAPL, BA, CAT, CVX, DOW, GS, IBM, INTC, JPM, KO, MMM, PFE, UNH, VZ, WBA, 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 also is a consideration.

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 14.83%-26.4% topped by Dow Inc.

Top Dow dog by yield was Dow, Inc. The top-yield ten, KO, CAT, WBA, MMM, PFE, CVX, VZ, XOM, IBM, and DOW, averaged 3.46%. These are the Dow dogs 5/21/2019.

Dow top ten firms by broker target price upsides, XOM, MMM, UNH, AAPL, CVX, GS, BA, INTC, DOW, and CAT, averaged 17.26% in broker-estimated price upsides.

Analyst one-year targets predicted that all ten highest yield Dow stocks could produce 18.09% more gain from $5k invested than from $5k in the lowest-priced five. High-priced "big" dogs are leading the broker-augured Dow Index into June.

Actionable Conclusions (1-10): Brokers Predicted 14.83% To 26.4% Net Gains From Top Ten Dow Dogs By June 2020

Five 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 May yield-based forecast for Dow dogs, as graded by Wall St. wizards, was 50% accurate.

Source: YCharts.com

Projections based on estimated dividend returns from $1,000 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 May 21, 2020 were:

Dow Inc. (DOW) was projected to net $263.95, based on the median of target price estimates from eighteen analysts, plus the estimated annual dividend, less broker fees. A beta number was not available for Dow.

Caterpillar Inc. (CAT) was projected to net $246.69 based on the median of target price estimates from twenty-five analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk 46% more than the market as a whole.

Intel Corp. (INTC) was projected to net $230.63, based on the median of target estimates from forty-one analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk 25% less than the market as a whole.

Boeing Co. (BA) was projected to net $202.59 based on dividends, plus a median of target estimates from twenty-three brokers, less broker fees. The Beta number showed this estimate subject to risk 30% over the market as a whole.

Chevron Corp. (CVX) was projected to net $182.98, based on dividends, plus a mean target price estimate from twenty-three analysts, less broker fees. The Beta number showed this estimate subject to risk equal to the market as a whole.

Exxon Mobil Corp. (XOM) was projected to net $175.27, based on dividends, plus the median of target price estimates from twenty-three analysts, less broker fees. The Beta number showed this estimate subject to risk 10% less than the market as a whole.

3M Co. (MMM) was projected to net $166.66, based on dividends, plus a mean target price estimate from eighteen analysts, less broker fees. The Beta number showed this estimate subject to risk 1% less than the market as a whole.

Goldman Sachs Group Inc. (GS) was projected to net $162.24, based on dividends, plus the median of target price estimates from twenty-eight analysts, less broker fees. The Beta number showed this estimate subject to risk 23% more than the market as a whole.

Apple Inc. (AAPL) was forecast to net $153.87, based on target price estimates from forty-one analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to risk 14% more than the market as a whole.

UnitedHealth Group Inc. (UNH) netted $148.27 based on a target price estimate from twenty-six analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk 26% less than the market as a whole.

The average net gain in dividend and price was estimated at 19.33% on $10k invested as $1k in each of these ten Dow stocks. This gain estimate was subject to average volatility 5% under the market as a whole.

Source: 3milliondogs.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 May 21, 2019 Dow 30 Index By Yield

Source: YCharts.com and IndexArb.com

Actionable Conclusion (11-20) 10 Top Dow Dividend Stocks By Yield Ranged 3.29% To 5.53% Per YCharts & 3.31% To 5.53% Per IndexArb

Top ten Dow dogs as of 5/21/19 by both YCharts and IndexArb represented eight of eleven Morningstar sectors. Both listed the same top nine stocks but IndexArb elevated JPM to the top ten and dropped CAT to the lower level as their eighth pick.

Top yielding stock, Dow, Inc. [1] was the lone basic materials sector representative in the top ten.

Second place went to the lone technology firm in the top ten, International Business Machines Corp. (IBM) [2].

Third and fifth places went the the two energy firms, Exxon Mobil [3] and Chevron Corp. [5] in both Ychart and IndexArb lists. The lone Dow index communication services firm placed fourth, Verizon (VZ) [4], on both lists.

In sixth place per YCharts was Healthcare firm, Pfizer (PFE) [6][7] which ranked seventh by IndexArb.

The first consumer defensive representative in the top ten, Walgreens Boots Alliance Inc. (NASDAQ:WBA) [8][6], placed eighth per YCharts but sixth per IndexArb's yield projection.

YCharts put the industrials firm 3M Co. [7][8] in seventh, while IndexArb dropped that firm into eighth, and YCharts had the other industrial outfit Caterpillar [9] in ninth, whereas IndexArb put JPMorgan Chase (JPM) [9] in ninth and left CAT out of the top ten, just as YCharts did to JPM from the financial services sector.

Both YCharts and IndexArb had Coca-Cola Co. (NYSE:KO) in tenth, as the second Consumer Defensive representative, to complete the May 21 top ten list of Dow dogs by yield.

Source: YCharts.com and IndexArb.com

Dividend Vs. Price Results

Graphs above show the relative strengths of the top ten Dow dogs by yield as of market close 5/21/2019. 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 select stocks whose dividends from $1k invested exceed their single share price. In the Dow 30 Index, only one Dow stock, Dow Inc., now meets that goal.

However, three Dow Dogs are within range of shedding prices just 25% or less to meet the goal: Verizon at $59.50 needs to drop 17.65% to $49.00. Pfizer at $41.67 is within 9% of $37.90 to make goal. Finally, Coca-Cola Co. needs to shed 17.7% to drop from $48.60 to $40.00 to see dividend yield from $1k invested exceed the single share price, and shed the overbought condition.

Actionable Conclusion (21): Dow Dogs Stay Overbought

The aggregate single share price vs. dividend yield for the top ten Dow dogs was 69% per YCharts and 68% for IndexArb, while the dividend derived from $10k invested as $1k in each of the ten was 31% per YCharts and 32% 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 May 21, 2019 was $25.41 per YCharts or $24.90 in the IndexArb reckoning.

Price Drops of 5% to 65% 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 Dow is clear, while Verizon, Coca-Cola, and Pfizer 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 13.97% To 22.37% Top Ten Upsides To May 21, 2020; (32) One Downside Was 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 18.09% Disadvantage For 5 Highest Yield, Lowest Priced Of May 21, 2020

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

Source: YCharts.com

As noted above, top ten Dow dogs selected 5/21/19 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 12.45% Vs. (34) 15.2% Net Gains by All Ten Come May 21, 2020

Source: YCharts.com

$5,000 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 18.09% LESS gain than from $5,000 invested in all ten. The third lowest priced, Dow Inc., was projected to deliver the best net gain of 26.39%.

Source: YCharts.com

The five lowest-priced Dow top-yield dogs for April 25 were: Pfizer, Coca-Cola, Dow. Inc., Walgreens Boots Alliance Inc., and Verizon Communications, with prices ranging from $41.67 to $59.50.

Five higher-priced Dow top-yield dogs for May 21 were: Exxon Mobil, Chevron, Caterpillar, International Business Machines, and 3M Co., whose prices ranged from $76.25 to $167.30.

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, analyst 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 YCharts. Dog photo: 3milliondogs.com.

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.