Russell 50 Crushing Dow 30 Dividend Dogs In June

Includes: COP, CVX, JNJ, MO, MRK, PFE, PG, PM, T, VZ
by: Fredrik Arnold

Many investors have relied on a once per year trading system triggered by yield, called the "Dogs of the Index" to select their best of the best dividend stocks. The system empowers investors with all the wisdom and knowledge of the well-paid wizards of investment and publishing for free, as they select the highest yielding and lowest priced choices from a collection of equities built by experts.

According to Russell Investors, publishers of the subject index for this article, "the Russell Top 50® Index measures the performance of the largest companies in the Russell 3000® Index. It includes approximately 50 of the largest securities based on a combination of their market cap and current index membership and represents approximately 40% of the total market capitalization of the Russell 3000."

Charts below for the Russell 50 Index reveal high yielding stocks whose prices increased (or whose dividends decreased) as candidates to be sold off once each year in order to sweep gains and reinvest the seed money into higher yielding stocks in the same index.

Two key metrics determined the yields to rank the Russell 50 dog stocks: (1) stock price; (2) annual projected 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 the results from an investment in the lowest priced, highest yielding ten stocks in the index.

Investment empowerment from the Russell Top 50

Listed below are the top thirty Russell 50 stocks by yield as of 6/18/12 per Yahoo Finance data. Russell Investments states: "The Russell Top 50 Index is constructed to provide a comprehensive unbiased and stable barometer of the largest U.S. companies. The Index is completely reconstituted annually to ensure new and growing equities are reflected."

As of June 18, none of the top ten stocks in this index were financial sector firms. Of the top ten Russell 50 stocks by yield, two were technology firms, AT&T (NYSE:T) led the pack, while Verizon Communications (NYSE:VZ) came in at number four. The rest of the top ten Russell 50 pack included: three consumer goods, Altria Group (NYSE:MO), Procter & Gamble (NYSE:PG), and Phillip Morris International (NYSE:PM); two basic materials, ConocoPhillips (NYSE:COP), and Chevron (NYSE:CVX); three healthcare, Merck & Co. Inc. (NYSE:MRK); Pfizer Inc. (NYSE:PFE), and Johnson & Johnson (NYSE:JNJ) representing four of nine sectors.

Up and Down Moves by Russell 50 index Dogs

As it has on the Dow, AT&T has held the top of the Russell list since it was reconstituted last June.

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

Bullish upward price moves since May were made by all but one of the top ten Russell 50 dogs: AT&T dialed up a 5.85% gain; Verizon Communications connected with a 5.51% gain. Most of the rest of the top ten Russell 50 pack showed price gains: Altria Group 5.42%; Phillip Morris International 4.54%; ConocoPhillips 8.36%; Chevron 5.08%; Merck & Co. Inc. 2.72%; Pfizer Inc. .222%; Johnson & Johnson 4.66%.

Bearish downward price moves of the top ten Russell 50 dog in June were reserved for Procter & Gamble whose price fell 1.94%.

Dividend vs. Price Results

Relative strengths for the Russell 50 top ten index stocks by yield was graphed as of June 18, 2012. Six months of historic projected annual dividend history from $1000 invested in the ten highest yielding stocks and the total single share prices of those ten stocks created the data points for each month shown in green for price and blue for dividends.

Conclusion: Russell 50 More Overbought Than Dow

The chart below showed the Russell 50 top ten aggregate single share prices moving away from annual projected dividends from $1,000 invested in each stock since January. This pattern of price exceeding dividends reveals the overbought condition for this index and the Dow.

Russell 50 projected dividend totals for $1000 invested in the top ten dropped dramatically away from their aggregate total single share prices by 4.77% since January. The bears did hold sway from March to May and Russell dividend yields climbed while stock prices dropped in that period. Between May 14 and June 16, however, the bull came back with dividends dropping 4.22% while prices climbed 13.74%. Will price gains continue to be rampant on the Russell 50 this summer? Stay tuned.

Conclusion Too:

Russell 50 Dogs Crush Dow 30 11.47% to 6.68% in 2011 to 2012 Gains as of June 1

In this battle of overbought indices, Russell 50 top ten dogs prevailed over the Dow 30. The box score below shows Russell dogs beating Dow dogs by $478.56 or 4.79% in net returns from $10k invested since June 1, 2011. The sale of Intel, Abbott and Microsoft at June 1, 2012 closing prices combined with a special extraordinary dividend from ConocoPhillips generated the larger net return. Dow dogs only counted two sales of Intel and Kraft as of June 1. The Net returns were calculated by adding all the actual dividends paid by the top ten dogs in each index plus stock sale gains minus brokerage per trade fees of $10 per trade for securities sold.

Next month: July results.

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.

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