Dividend Dog Dance Of The Dow 30 Index In March

by: Fredrik Arnold

A trading system triggered by yield called the "Dogs of the Index" can be used to determine the best of the best dividend stocks. The dogs system empowers investors with all the wisdom and knowledge of well-paid wizards of investment and publishing for free, as once each year those investors select the highest yielding and lowest priced constituents in a collection of equities built by experts.

This Dogs of the Index strategy, popularized by Michael B. O'Higgins in the book "Beating The Dow" (HarperCollins, 1991), revealed high yielding stocks whose prices increased (or whose dividends decreased) as candidates to be sold off this time next year to sweep gains and reinvest the seed money into higher yielding stocks in the same index. Charts below display a snapshot of the Dow 30 Index as of March 13, 2012.

Two key metrics determined the yields to rank the Dow Index dog stocks: (1) stock price; (2) annual dividend. Dividing the annual dividend by the price of the stock declared the percentage yield by which each dog stock was ranked. Thus the investor was able to follow, trade, and await results from an investment in the lowest priced, highest yielding five or ten stocks in the index.

Investor Empowerment from the Dow 30

Listed below are the thirty Dow Index stocks by yield as of 2/10/12 per IndexARB.com data. CME Group, publisher if this index, states:

The Dow Jones Industrial Average (DJIA) is a price-weighted index of 30 blue-chip U.S. companies representing nine economic sectors including financial service, technology, retail, entertainment and consumer goods. The leadership position of the component stocks in the DJIA tends to result in an extremely high correlation of the DJIA to broader U.S. indexes, such as the S&P 500 Index providing additional opportunities.

Click to enlarge:

Three technology firms paying the biggest dividends on the Dow as of March 13 were: (1) AT&T (NYSE:T); (2) Verizon (NYSE:VZ); (7) Intel (NASDAQ:INTC). The rest of the Dow 10 dogs included three healthcare, one industrial, one consumer, and two basic materials firms. Thirty Dow stocks included seven technology companies, three consumer goods, four financial, four services, four basic materials, two industrial, three health care, no utilities, and three conglomerates representing market sectors.

Vertical moves by Dow Index Dogs

As it did for the past year, AT&T continued to wear the yellow tint atop this list.

Color code shows: (Yellow) firms listed in first position at least once between November 2011 and March 2012; (Cyan Blue) firms listed in tenth position at least once between November 2011 and March 2012; (Magenta) firms listed in twentieth position at least once between November 2011 and March 2012; (Green) firms listed in thirtieth position at least once between November 2011 and March 2012. Duplicates were depicted in color for highest ranking attained.

Click charts below to enlarge:

Bullish vertical moves since February 10 were made by nine of the top ten Dow 30 dogs: AT&T Inc.'s share price increased 6.0%; Verizon Communications saw a 4.14% price bump; Merck & Company (NYSE:MRK) price increased .976%, but held position on the list as its projected dividend yield from IndexArb was boosted $.02 or 1.18%; Pfizer Inc. (NYSE:PFE) saw its share price pop 4.56%; General Electric's (NYSE:GE) share price jumped 3.76% while its annual dividend estimate was boosted $.03 or 4.225%; Johnson & Johnson (NYSE:JNJ) shot up 1.13% and its estimated dividend popped $.03 or 1.266%; Intel Corporation showed a price gain of 2.96%; Procter & Gamble (NYSE:PG) showed a 6.29% price boost; Dupont (DD) showed a 2.99% price improvement for March. Honorable mention was given to Chevron Corp (NYSE:CVX) whose price shot up 5.613% to drop it out of the top ten, despite IndexArb also boosting its forward looking dividend estimate $.04 or 1.22%.

Only one bearish move for the same period was made by a dog of the Dow 30 top 10: Kraft Foods (KFT) jumped into the top ten ranks as its price declined .1555% in March.

Dividend vs. Price Results for Dow 30 Dogs

Relative strengths of the top ten Dow 30 Index stocks by yield was graphed as of March 13, 2012. Projected annual dividend history from $1000 invested in the ten highest yielding stocks each month and the total single share prices of those ten stocks created the data points for each of the past five months shown in green for price and blue for dividends.

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Dow 30 Index constituents reflected bull market symptoms as projected dividend totals for $1000 invested in the top ten decreased 8.36%; their aggregate total single share prices increased 11.07% over the five months graphed.

The pattern altered between February and March as Dow 30 top 10 dividends from $1k invested in each of the dogs decreased 2.77,while single share prices for those stocks also decreased 11.83% for the month. The price decrease was caused by high priced Chevron exiting the top ten (as its price increased and yield dropped), being replaced by lower priced Kraft.

Will the Dow 30 Index bullish price gains continue into April? Stay tuned.

Disclosure: I am long T, VZ, JNJ, INTC, CVX.

Disclaimer: This article is for informational and educational purposes only and shall 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 are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.