Foreword
While more than half this collection of Dow Industrials is too pricey and reveals only skinny dividends, the 10 lowest priced Dogs of the Dow are worth consideration. This month none of the 10 live up to the ideal of annual dividends from $1K invested exceeding the single share price. Several, however, show prices within $10 of meeting that goal.
With renewed downside market pressure, it may be possible for (CSCO, WBA, KO, VZ, DOW, INTC, MRK, and CVX) to become elite fair-priced dogs with their annual yield (from $1K invested) meeting or exceeding their single share prices by year's end. But holiday ebullience prevailed in the January/February market and the Dow prices of all Dow stocks have run out of reach.
After the Ides of March dip, and others yet to come, the time to buy top yield Dow dogs may soon begin again.
Actionable Conclusions (1-10): Brokers Targeted 18.31% To 26.25% Net Gains From Top-Ten Dow Dogs By February 26, 2022
Two of 10 top dividend-yielding Dow dogs were verified as also 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, this March 2021 yield-based forecast for Dow dogs, as graded by Wall St. wizard estimates, was 20% accurate.
Estimates based on dividend returns from $1,000 invested in the 10 highest yielding stocks and their aggregate one-year analyst median target prices, as reported by YCharts, created the 2021-22 data points. Note: One-year target prices estimated by lone analysts were not applied. Ten probable profit-generating trades projected to Jan. 28, 2022 were:
Source: YCharts.com
Salesforce.com Inc (CRM) was forecast to net $262.52, based on the median of target price estimates from forty-five analysts, including annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 12% over the market as a whole (the non-dividend stock on the list).
Procter & Gamble Co (PG) was projected to net $238.78, based on the median of target estimates from twenty-three analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 58% less than the market as a whole.
Walmart Inc (WMT) was projected to net $235.35, based on dividends, plus the median of target price estimates from thirty-eight analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 54% less than the market as a whole.
Apple Inc (AAPL) netted $228.04 based on the median of target price estimates from forty analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 25% greater than the market as a whole.
Nike Inc (NKE) was projected to net $209.06, based on dividends, plus the median of target price estimates from thirty-three analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 14% under the market as a whole.
Goldman Sachs Group Inc (GS) was projected to net $199.19 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/volatility 24% over the market as a whole.
The Home Depot Inc (HD) was projected to net $197.28, based on the median of target price estimates from thirty-three analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 1% greater than the market as a whole.
International Business Machines Corporation (IBM) was projected to net $195.90, based on dividends, plus the median target price estimates from fifteen analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 26% greater than the market as a whole.
Coca-Cola Co (KO) was projected to net $187.80, based on the median of target price estimates from twenty-four analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 38% less than the market as a whole.
McDonald's Corp (MCD) was projected to net $183.14, based on dividends, plus the median of target prices estimated by thirty-six analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 38% under the market as a whole.
The average net gain in dividend and price was estimated at 21.37% on $10K invested as $1K in each of these top ten Dow Index stocks. This gain estimate was subject to average risk/volatility 16% under the market as a whole.
Source: sheaffbrockinstitutional.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, 2021 Dow 30 By Yield
Source: YCharts.com and indexArb.com
Actionable Conclusions (11-20): 10 Top Dow Dividend Stocks By Yield Ranged 3.13% To 5.48% Per YCharts And 3.21% To 5.62% Per IndexArb
Top ten Dow dogs as of 2/26/21 by YCharts and IndexArb represented seven of eleven Morningstar sectors. Both listed the same ten stocks in the same order.
The top Dog of the Dow stock was the first of two technology dogs in the top ten, International Business Machines [1]. The other technology leader came in ninth, Cisco Systems Inc (CSCO) [9].
The lone Dow energy stock was second on both lists, Chevron Corp (CVX) [2]. Third place was claimed by the basic materials representative, Dow Inc (DOW) [3], and the fourth place holder on both lists was the communication services representative, Verizon Communications Inc (VZ)[4].
Fifth and sixth places were both occupied by the top healthcare firms, Walgreens Boots Alliance (WBA) [5], and Merck & Co Inc (MRK) [6]. Then a lone consumer defensive sector representative placed seventh, Coca-Cola Co [7].
The lone industrials leader was eighth per both YCharts and IndexArb, 3M Co, (MMM) [8], then one more healthcare sector representative tailed the YChart List, Amgen (AMGN) [10], to complete the February 26 top ten list of dogs of the Dow by yield for March.
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 1/28/2021. The two sets of charts show the variation of dividends calculated by YCharts.com estimates and those from the arbitrage firm IndexArb.com. There was a $0.45 difference in estimated total single share dividends between YCharts and IndexArb, resulting in a $2.38 cost per dividend dollar differential. Thus the numbers were too small to make any percentage differential.
This month, all of the top 10 Dow dogs show an overbought condition (in which aggregate single share price of the 10 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. That's not happening this month.
Actionable Conclusion (21): Dow Dogs Are All Overbought
This gap between high share price and low dividend per $1K (or oversold condition) means, no matter which chart you read, all of these 27 dividend payers are low risk and low opportunity Dow dogs, with the non-dividend payers being particularly dismal The Dow top 10 average price per dollar of annual dividend for February 26, 2021 was $25.23 per YCharts or $24.92 in the IndexArb reckoning.
One that cut its dividend in March, Boeing (BA), has re-learned and been certified that it knows how to fly so may rise again if airlines ever order planes again. BA may be still in worse shape than was GE when excused from the Dow index. As for DIS, the magic kingdom may have to sell some castles to stay solvent. The new non-dividend stock on the block, CRM, is simply overpriced. Those three non-dividend payers are the true down-dogs of the Dow.
Remember this dogcatcher yield-based stock picking strategy is contrarian. That means rooting for (buying) the underdog is productive when you don't already own these stocks. If you do hold these stocks, then you must look for opportune pull-backs in price to add to your position to best improve your dividend yield.
Price Drops or Dividend Increases Could Get All Ten Dow Dogs Back to "Fair Price" Rates For Investors
Source: YCharts.com
The charts above retain the current dividend amount and adjust share price to produce a yield (from $1K invested) to equal or exceed the single share price of each stock. As you can see, this illustration shows that nine more low priced stocks (WBA; CISCO; CVX; DOW; VZ; KO; JPM; IBM; MRK) need to trim prices between five and fifty-dollars. Then, two behemoth priced stocks hold the key to realizing the 50/50 goal for share prices equaling dividend payouts from $10K invested. If 3M could shed just $98 and Amgen could drop $164.50 in share price, the top ten as a group could attain that elusive 50/50 goal.
Source: YCharts.com
Actionable Conclusions: (22-31) Dow Index Showed 16.35% To 27.25% Top Ten Upsides To February 26, 2022; (32) Three Downside Was Revealed By Broker 1-Yr. Targets
To quantify top dog rankings, analyst median price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high-yield "dog" metrics, analyst median price target estimates provided another tool to dig out bargains.
Analysts Forecast A 2.31% Disadvantage For 5 Highest Yield, Lowest Priced of 10 Dow Dogs As Of February 26, 2022
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 12/26/21 revealing the highest dividend-yields represented seven of the eleven sectors in Y-Charts and IndexArb reckonings. Consumer Cyclical and Financials went missing. (Real Estate is not reported and Utilities has its own Dow Index.)
Actionable Conclusions: Analysts Expected 5 Lowest-Priced of the Ten Highest-Yield Dow Dogs (34) To Deliver 11.22% Vs. (35) 11.48% Net Gains by All Ten Come February 26, 2022
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 2.31% LESS gain than from $5,000 invested in all ten. The eighth lowest priced, Merck & Co Inc showed top analyst estimated gains of 19.59%.
Source: YCharts.com
The five lowest-priced Dow top-yield dogs for February 26 were: Cisco Systems Inc; Walgreens Boots Alliance Inc; Coca-Cola Co; Verizon Communications Inc; Dow Inc, with prices ranging from $44.87 to $59.31.
Five higher-priced Dow top-yield dogs for February 26 were: Merck & Co Inc; Chevron Corp; International Business Machines; 3M Co; Amgen Inc, whose prices ranged from $72.62 to $224.92.
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, and they continued to be contrary for the first two quarters of 2019 but switched to conforming for the last two quarters.) In 2020 analyst projections so far have been quite contrarian.
Afterword
Lest there be any doubt about the recommendations in this article, this month there were no Dow Index stocks showing dividends for $1K invested exceeding their single share price.
The dogcatcher hands off recommendations are still in place referring to one that cut its dividend in March, while Boeing (BA), has re-learned (and is certified) how to fly, it still has to find customers before it can get airborne again. BA is absolutely in worse shape than was GE when booted off the Dow index (despite analyst optimism for the lone American commercial air-crafter). Also keep hands off the new non-dividend member of the Dow, Salesforce.com Inc until it declares a dividend from $1K invested greater than its single share price. While subscriptions keep the ship afloat, Disney needs audiences to get back to buying tickets to watch and ride before resuming a dividend.
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 Indexarb; YCharts; finance.yahoo.com; analyst mean target price by YCharts. Dog photo: sheaffbrockinstitutional.com
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