Hungry Dogs Of The Dow Chase 15.79% Net Gains Targeted By Wall Street Gurus For June

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Includes: BA, CAT, CVX, DOW, GS, IBM, INTC, JPM, KO, MMM, PFE, UNH, UTX, 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.is also a consideration".

30 Dow stocks represent nine of eleven Sectors. Dow utilities is a separate index. Real estate is omitted. Broker top 10 target-estimated net gains ranged 14.26%-25.79% topped by Dow Inc. 6/18/19.

Top Dow dog by yield was Dow, Inc. The top-yield 10: CAT, KO, WBA, PFE, MMM, CVX, VZ, XOM, IBM, and DOW averaged 3.94% yield.

Dow top 10 firms by broker target price upsides, WBA, INTC, BA, CVX, UNH, XOM, CAT, GS, UTX, and DOW averaged 17.9% in broker estimated price upsides.

Analyst one-year targets predicted that all 10 highest yield Dow stocks could produce 12.84% 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 July.

Actionable Conclusions (1-10): Brokers Predicted 14.26% To 25.79% Net Gains From Top 10 Dow Dogs By Late June 2020

Five of 10 top dividend-yielding Dow dogs were verified as being among the top 10 gainers for the coming year based on analyst one-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 $1k invested in the 10 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. 10 probable profit-generating trades projected to June 18, 2020 were:

Dow Inc. (DOW) was projected to net $257.85, based on the median of target price estimates from 18 analysts, plus the estimated annual dividend, less broker fees. A beta number was not available for Dow.

United Technologies (UTX) was projected to net $216.41, based on dividends, plus a mean target price estimate from 18 analysts, less broker fees. The Beta number showed this estimate subject to risk 27% more than the market as a whole.

Goldman Sachs Group Inc. (GS) was projected to net $190.60, based on dividends, plus the median of target price estimates from 27 analysts, less broker fees. The Beta number showed this estimate subject to risk 27% more than the market as a whole.

Caterpillar Inc. (CAT) was projected to net $181.73 based on the median of target price estimates from 26 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk 52% more than the market as a whole.

Exxon Mobil Corp. (XOM) was projected to net $173.32, based on dividends, plus the median of target price estimates from 22 analysts, less broker fees. The Beta number showed this estimate subject to risk 5% less than the market as a whole.

UnitedHealth Group Inc. (UNH) netted $171.21 based on a target price estimate from 16 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk 34% less than the market as a whole.

Chevron Corp. (CVX) was projected to net $158.61, based on dividends, plus a mean target price estimate from 22 analysts, less broker fees. The Beta number showed this estimate subject to risk 2% under the market as a whole.

Boeing Co. (BA) was projected to net $151.43 based on dividends, plus a median of target estimates from 23 brokers, less broker fees. The Beta number showed this estimate subject to risk 31% over the market as a whole.

Intel Corp. (INTC) was projected to net $146.01, based on the median of target estimates from 41 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk 16% less than the market as a whole.

Walgreens Boots Alliance (WBA) was forecast to net $142.62, based on target price estimates from 24 analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to risk 32% less than the market as a whole.

The average net gain in dividend and price was estimated at 17.9% on $10k invested as $1k in each of these 10 Dow stocks. This gain estimate was subject to average risk 4% under the market as a whole.

Source: million-wallpapers.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 June 18, 2019 Dow 30 Index By Yield

Source: YCharts.com and indexArb.com

Actionable Conclusions (11-20): 10 Top Dow Dividend Stocks By Yield Ranged 3.16% To 5.64% Per YCharts And 3.20% To 5.64% Per IndexArb

Top 10 Dow dogs as of 6/18/19 by both YCharts and IndexArb represented eight and nine of 11 Morningstar sectors. Both listed the same top five stocks but IndexArb elevated JPMorgan Chase (JPM) to the top 10 and dropped CAT to the lower level as their 10th and ninth picks.

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 to 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 industrals firm, 3M Co. (MMM) [6][7] which ranked seventh by IndexArb.

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

YCharts put the healthcare firm Pfizer. (PFE) [7] [8] in seventh, while IndexArb dropped that firm into eighth, and YCharts had the other consumer defensive bottler, Coca-Cola Co. (KO) [9] [10] in ninth whereas IndexArb dropped Coke to tenth. Industrial outfit Caterpillar [9] placed ninth on YCharts list, while IndexArb put JPMorgan Chase [9] in ninth and left CAT out of the top ten, just as YCharts did to JPM from the financial services sector, to complete the June 18 top 10 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 10 Dow dogs by yield as of market close 6/18/2019. The two sets of charts show the variation of dividends calculated by YCharts.com estimates and those from the arbitrage firm IndexArb.com.

Top 10 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 10). 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 $57.33 needs to drop 14.5% to $49.00. Pfizer at $43.07 is within 11.9% of $37.93 to make goal. Finally, Coca-Cola Co. needs to shed 21% to drop from $50.64 to $40.00 to see dividend yield from $1K invested exceed the single share price, and shrug off its overbought condition.

Actionable Conclusion (21): Dow Dogs Stay Overbought

The aggregate single share price vs dividend yield for the top 10 Dow dogs was 69% per YCharts and 68% for IndexArb, while the dividend derived from $10k invested as $1k in each of the 10 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 10 average price per dollar of annual dividend for June 18, 2019 was $25.75 per YCharts or $24.96 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 11.93% To 21.14% Top 10 Upsides To June 18, 2020; (32) Three Downsides Were Noted Per Broker One-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 12.84% Disadvantage For Five Highest Yield, Lowest Priced As Of June 18, 2020

10 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 10 Dow dogs selected 6/18/19 revealing the highest dividend yields represented eight of the 11 sectors in Y-Charts and IndexArb reckonings.

Actionable Conclusions: Analysts Expected Five Lowest-Priced of the 10 Highest-Yield Dow Dogs (33) To Deliver 10.45% Vs. (34) 11.99% Net Gains by All 10 Come June 18, 2020

Source: YCharts.com

$5k invested as $1k in each of the five lowest-priced stocks in the top ten Dow Dividend kennel by yield were predicted by analyst one-year targets to deliver 12.84% LESS gain than from $5k invested in all 10. The second lowest priced, Dow Inc., was projected to deliver the best net gain of 25.78%.

Source: YCharts.com

The five lowest-priced Dow top-yield dogs for June 18 were: Pfizer Dow. Inc. Coca-Cola, Walgreens Boots Alliance Inc. (WBA), Verizon Communications, with prices ranging from $43.07 to $57.33.

Five higher-priced Dow top-yield dogs for June 18 were: Exxon Mobil, Chevron, Caterpillar, International Business Machines, 3M Co., whose prices ranged from $75.74 to $171.86.

The distinction between five low-priced dividend dogs and the general field of 10 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, and they have continued to be contrary for the first two quarters of 2019.)

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.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from Indexarb, YCharts, finance.yahoo, analyst mean target price by YCharts. Dog photo: million-wallpapers.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.

Additional disclosure: 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.