August Dogs Of The Dow Show 4 To Buy + One To Watch

Aug. 05, 2022 6:02 AM ETBA, CAT, CRM, CSCO, CVX, DIS, DOW, IBM, INTC, JPM, MMM, MRK, NKE, V, VZ, WBA

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." - Dow Jones & Co.
  • Thirty 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 20%-29.36% topped by CRM 8/3/22.
  • Highest-yield 10 are the August Dogs of the Dow: MRK, CSCO, JPM, CVX, INTC, MMM, WBA, IBM, DOW, and VZ, averaged a 4.28% annual yield.
  • Dow Industrial Index top-ten firms by broker target-price upside, CSCO, GS, MSFT, CAT, NKE, JPM, V, BA, DIS, and CRM, averaged 22.9%.
  • Analyst one-year targets showed ten highest-yield Dow stocks producing 10.02% more gain from $5k invested in the lowest-priced five than from the same investment in all ten. Lower-priced ("Little" Dow dogs) continued their lead by over one and three-quarter lengths in August gains.
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Foreword

While more than half this collection of Dow Industrials is too pricey and reveals only skinny dividends, four of the five lowest priced Dogs of the Dow are ready to buy. This month, Intel Corp (INTC), Walgreens Boots Alliance (WBA), Verizon Communications Inc (VZ), and Dow Inc (DOW) live up to the dogcatcher ideal of annual dividends from $1K invested exceeding their single share prices. Furthermore, one more, showed its price within $6.70 of meeting that goal.

With renewed downside market pressure of 51.5%, it would be possible for all ten (even 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. [See a summary of top ten fair-priced August Dow Dogs in Actionable Conclusion 21 near the middle of this article.]

Actionable Conclusions (1-10): Brokers Expect 20% To 29.36% Net Gains From Top-Ten Dow Dogs By August 2023

Four of ten top dividend-yielding Dow dogs (tinted gray in the chart below) were among the top ten gainers for the coming year based on analyst 1-year target prices. So, this August, 2023 yield-based forecast for Dow dogs, as graded by Wall St. wizard estimates, was 40% accurate.

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 2022-23 data points for the projections below. Note: one-year target prices estimated by lone analysts were not applied. Ten probable profit-generating trades projected to August 3, 2023 were:

DOW (1A) GAINERS AUG22-23

Source: YCharts.com

Salesforce Inc (CRM) was projected to net $293.56, based on the median of target price estimates from forty-six analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 8% greater than the market as a whole.

The Walt Disney Co (DIS) was projected to net $287.01, based on the median of target estimates from twenty-eight analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 21% over the market as a whole.

Boeing Co (BA) was forecast to net $274.21, based on the median of target price estimates from nineteen analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 38% greater than the market as a whole.

JPMorgan Chase & Co (JPM) was projected to net $246.33, based on the median of target price estimates from twenty-six analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 12% more than the market as a whole.

Visa Inc (V) was projected to net $226.09, based on dividends, plus the median of target price estimates from thirty-two analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 11% under the market as a whole.

Caterpillar Inc (CAT) was projected to net $223.62 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 10% more than the market as a whole.

Verizon Communications Inc was projected to net $220.12, based on dividends, plus the median of target price estimates from twenty-two analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 67% less than the market as a whole.

Nike Inc (NKE) netted $214.39 based on the median of target price estimates from thirty-one analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 2% greater than the market as a whole.

Dow Inc was projected to net $205.79, based on the median of target prices estimated by nineteen analysts, less broker fees. A Beta number is still not available for DOW.

Cisco Systems Inc (CSCO) was projected to net $200.29, based on dividends, plus the median target price estimates from twenty-four analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 3% less than the market as a whole.

The average net gain in dividend and price was estimated at 23.91% on $10k invested as $1k in each of these top ten Dow Index stocks. This gain estimate was subject to average risk/volatility 1% greater than the market as a whole.

DOW (2) DOWDOG AUG,22-23 Open source dog art DDC 1 from dividenddogcatcher.com

Source: Open source dog art from dividenddogcatcher.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 August, 2022 Dow 30 By Yield

DOW(3)YCRTvsNDXAYields AUG22-23

Source: YCharts.com and indexArb.com

Actionable Conclusions (11-20): 10 Top Dow Dividend Stocks By Yield Ranged 3.15% To 5.65% Per YCharts And 3.32% To 5.73% Per IndexArb

Top ten Dow dogs as of 8/3/22 represented seven of eleven Morningstar sectors by YCharts and IndexArb. All ten stocks were the same on the two lists and the order was also identical.

Both YCharts and IndexARB put the lone communication services sector member on their lists in first place, Verizon [1]. In second place was the lone basic materials dog, Dow Inc [2].

Then three technology dogs were placed in the third, sixth, and ninth positions, International Business Machines (IBM) [3], Intel Corp [6] and Cisco Systems Inc [9] per YCharts and IndexArb.

However both lists put the first of two healthcare members fourth, Walgreens Boots Alliance [4] and the other health member was tenth, Merck & Co Inc, (MRK) [10].

The two lists showed a lone industrials dog in fourth, 3M Co (MMM) [4], and that the lone energy representative was seventh, Chevron (CVX) [7]. They also

Finally, the two lists agreed that ninth place belonged to the financial services firm, JPMorgan Chase & Co [9], to complete their August top ten dogs of the Dow by yield lists.

DOW/IARB (4A)DIVsPR AUG 22-23

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 8/3/2022. 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 $5.90 difference in total estimated single share dividends between YCharts and IndexArb top ten, resulting in a $0.42 average cost per dividend dollar differential. These numbers were just enough to show a 1% variance on the pie charts.

This month six of the 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. As mentioned above, that condition was reached by four of the five lowest priced Dogs of the Dow, Intel Corp, Verizon Communications, Walgreens Boots Alliance, and Dow Inc live up to the dogcatcher ideal of annual dividends from $1K invested exceeding their single share prices. Furthermore, one more, Cisco Systems, showed a price within $6.70 of meeting that goal as of August 3.

Actionable Conclusion (21): Six of Ten Top Dow Dogs Are Overbought

This gap between high share price and low dividend per $1k (or oversold condition) means, no matter which chart you read, 23 of all 27 Dow dividend payers are low risk and low opportunity dogs, with the non-dividend payers being particularly dismal. The Dow top-ten average cost per dollar of annual dividend for August 3, 2022 was $24.32 per YCharts or $23.909 by the IndexArb reckoning.

One that cut its dividend after March, 2020, Boeing, has re-learned (and is now certified that it knows how to fly in some countries) and is thus prepared to take off again if airlines ever trust planes made in the USA again. The used plane and airbus market, however, is soaring. BA may not ever recover from being in worse shape than was GE when excused from the Dow index.

As for DIS, the magic kingdom may be close to reinstating a dividend but don't hold your breath. Furthermore, the newest of the three latest no-dividend stocks on the block, CRM, is simply overpriced. Those three non-dividend payers are the true down in the dumps dogs of the Dow, despite analysts high-balling their future share price estimates. All of the three demonstrate a total disregard for shareholders.

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. Plenty of pull-back opportunities appear to be ahead.

Price Drops or Dividend Increases Could Get All Ten Dow Dogs Back to "Fair Price" Rates For Investors

DOW(4B)FAIRDVSPR AUG22-23

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 this illustration shows, four are ideally priced. Beside Intel Corp, Walgreens Boots Alliance, Verizon Communications, and Dow Inc breaking into the ideal zone, one more low priced stock is within $5.90 of making the grade [CSCO].

Five more, however (IBM; MMM; CVX; JPM; MRK ) need to trim prices between $35.09 and $79.96. to attain that elusive 50/50 goal.

The alternative, of course, would be that these companies raise their dividends but that is a lot to ask in these highly disrupted, inflationary, yet cash-rich times. Mr. Market is much more effective at moving prices up or down to appropriate amounts.

DOW (5) UP/DNSIDES JULY22-23

Source: YCharts.com

Actionable Conclusions: (22-31) The Dow Index Showed 17.70% To 30.36% Top Ten Upsides To July, 2023; (32) No Downsides Were Revealed By Broker 1-Yr. Targets

To quantify top dog rankings, analyst median price target estimates provided 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 10.02% Advantage For 5 Highest-Yield, Lowest-Priced of 10 Dow Dogs As Of August 3, 2023

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

DOW (6)10LIST AUG22-23

Source: YCharts.com

As noted above, top-ten Dow dogs selected 7/1/22 by both the YChart and IndexArb methods revealing the highest dividend-yields represented seven of the eleven sectors. Consumer Cyclical and Consumer Defensive selections were 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 18.39% Vs. (35) 16.72% Net Gains by All Ten Come August 3, 2023

DOW (7) 10GAINS AUG22-23

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 10.02% more gain than from $5,000 invested in all ten. The seventh lowest priced, JPMorgan Chase & Co, showed top analyst-estimated gains of 24.6%.

DOW (8) 10xPR AUG22-23

Source: YCharts.com

The five lowest-priced Dow top-yield dogs for August 3 were: Intel Corp; Walgreens Boots Alliance Inc; Verizon Communications Inc; Cisco Systems Inc; Dow Inc, with prices ranging from $36.52 to $51.49.

Five higher-priced Dow top-yield dogs for August 1 were: Merck & Co Inc; JPMorgan Chase & Co; International Business Machines Corp; 3M Co; Chevron Corp, whose prices ranged from $87.62 to $155.36.

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 90% accurate on the direction of change and just 0% to 15% 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 were quite contrarian. The first half of 2021 most dividend stock price actions exceeded all analyst expectations. The last half of 2021 was still gangbusters. The 2022 Summer sag may free-up five or more Dow dogs, sending them into the ideal zone where returns from $1k invested equal (or exceed) their single-share price.

Afterword

Lest there be any doubt about the recommendations in this article, this month there were four Dow Index stocks showing dividends for $1k invested exceeding its single share price: Intel Corp, Walgreens Boots Alliance, Verizon Communications, and Dow Inc.

The dogcatcher hands off recommendations are still in place referring to one that cut its dividend in March, 2020. While Boeing, has re-learned (and is certified in certain countries) how to fly, it still has to coax customers to get airborne again. BA faces strong headwinds to stay on the Dow index (despite analyst optimism for the lone American commercial air-crafter).

Also keep hands off the newest non-dividend member of the Dow, Salesforce 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 strapped back into buying tickets to watch and ride before resuming a dividend. The DIS parks are now open in CA & FL. And what about the cruise ships? Will anybody cruise, play on the parks, or attend movies again? If so, when will the DIS dividend return? Looks like all viewer loyalties have switched to Apple productions and streaming entertainment options. Happily, Disney franchised offerings compete well in the streaming market.

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.

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This article was written by

Fredrik Arnold profile picture
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Simple, straightforward 7-step analysis that finds lucrative income stocks.
Fredrik Arnold is my pen name. In 2012 I retired from doing quality service analysis in Boston and moved to North Carolina in 2013, thence to Central Oregon in 2018. My fascination with capital preservation, long-term investments, and trading systems keeps me blogging for Seeking Alpha. My articles focus on dividend yields, analyst median 1 yr targets, free cash flow yields, and one-year total returns as stock trading indicators. These are essential tools for catching the most valuable dividend dogs. My dividend dogcatcher premium site in the Seeking Alpha Marketplace shows annual real-time trading results since 2015.

Disclosure: I/we have a beneficial long position in the shares of INTC, CSCO either through stock ownership, options, or other derivatives. 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: 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. Open source dog art from dividenddogcatcher.com

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