While more than half the collection of Dow Industrials is too pricey and reveals only skinny dividends, the ten lowest priced Dogs of the Dow are worth a look. This month four of the ten live up to the ideal of having their annual dividends from a $1K investment exceed the single share price. Several more, show prices within $10 of meeting that goal.
With renewed downside market pressure, it may be possible for (CSCO, CVX, INTC, KO, MRK, & VZ) to join the elite lowest priced high-yield Dow stocks, DOW, XOM, WBA, and PFE (the current four ideal dogs) and so be fair-priced with their annual yield (from $1K invested) meeting or exceeding their single share prices by year’s end.
After the Ides of March dip, and others yet to come, the time to buy the top yield Dow dogs continues to be at hand.
Actionable Conclusions (1-10): Brokers Targeted 13.34% To 25.14% Net Gains From Top Ten Dow Dogs By August 13, 2021
Five of ten top dividend-yielding Dow dogs were verified as also being among the top ten gainers for the coming year based on analyst 1-year target prices. (They are tinted gray in the chart below). So, our August 2020 yield-based forecast for Dow dogs, as graded by Wall St. wizard estimates, was 50% accurate.
Estimates based on 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 2020-21 data points. Note: one-year target prices from single analysts were not applied. Ten probable profit-generating trades projected to August 13, 2021 were:
Raytheon Technologies Corp (RTX) was projected to net $251.35, based on dividends, plus the median of target prices estimated by twenty analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 25% over the market as a whole.
Exxon Mobil Corp (XOM) was projected to net $224.15, based on dividends, plus the median of target price estimates from twenty-four analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 29 % over the market as a whole.
Intel Corp (INTC) was projected to net $214.72 based on the median of target price estimates from forty-two analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 32% under the market as a whole.
Goldman Sachs Group Inc (GS) was projected to net $195.22, based on the median of target price estimates from twenty-six analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 44% more than the market as a whole.
Chevron Corp (CVX) netted $195.14 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 25% greater than the market as a whole.
Cisco Systems Inc (CSCO) was projected to net $191.91, based on the median of target price estimates from twenty-seven analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 3% less than the market as a whole.
Merck & Co Inc (MRK) was projected to net $158.08, based on the median of target estimates from nineteen analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 52% less than the market as a whole.
Pfizer Inc (PFE) was projected to net $146.14, based on dividends, plus the median target price estimates from seventeen analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 36% less than the market as a whole.
JPMorgan Chase & Co (JPM) was forecast to net $144.49, based on a the median of target price estimates from twenty-seven analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 18% above the market as a whole.
Coca-Cola Co (KO) was projected to net $133.40, based on dividends, plus the median of target price estimates from twenty-one analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 45% less than the market as a whole.
The average net gain in dividend and price was estimated at 18.55% on $10k invested as $1k in each of these top ten Dow Index stocks. This gain estimate was subject to average risk/volatility 2% under the market as a whole.
Actionable Conclusion (11): (Bear Alert) Analysts Predicted One Dow Dog To Have A 7.39% Loss to August 13, 2021
The probable losing trade revealed by Y-Charts to 2021 was:
Apple Inc (AAPL) projected a loss of $73.97 based on dividend and the median of target price estimates from thirty-nine analysts including broker fees. The Beta number showed this estimate subject to risk/volatility 23% greater than the market as a whole.
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 13, 2020 Dow 30 By Yield
Source: YCharts.com and indexArb.com
Actionable Conclusions (12-21): 10 Top Dow Dividend Stocks By Yield Ranged 3.39% To 8.09% Per YCharts And 3.45% To 8.18% Per IndexArb
Top ten Dow dogs as of 8/13/20 by YCharts and IndexArb represented eight of eleven Morningstar sectors. Both listed the same ten stocks in a single-adjustment order.
Fourth place on both the YChart and IndexArb lists went to the top technology firm, International Business Machines Corp (IBM) . Fifth place on both lists was filled by agreement by the top of two healthcare representatives, Walgreens Boots Alliance Inc (WBA). The second healthcare representative placed seventh on both lists, Pfizer Inc (PFE) .The sixth place holder, the communication services representative, Verizon Communications Inc (VZ).
The industrials leader was eighth per YCharts but placed ninth per IndexArb, 3M Co, (MMM) . The lone financial services member placed ninth per YCharts, but was eithth per IndexArb, JPMorgan Chase & Co (JPM) . Finally, in the tenth slot, was the consumer defensive stalwart, Coca-Cola Co (KO) , to complete the August 13 top ten lists of dogs of the Dow by yield.
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 8/16/2020. The two sets of charts show the variation of dividends calculated by YCharts.com estimates and those from the arbitrage firm IndexArb.com. While there was a $0.06 difference in estimated dividends between YCharts and IndexArb, that six cent’s worth did not change the percentages.
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. In the Dow 30 Index, four of top ten now meet that goal: ExxonMobil Corp (XOM); Dow Inc (DOW); Walgreens Boots Alliance Inc (WBA); Pfizer Inc. (PFE) are dogcatcher certified as buys to hold forever this month.
Actionable Conclusion (22): Dow Dogs Still Overbought
The difference in aggregate single share price vs dividend yield for the top ten Dow dogs was insignificant in terms of percentage this month. Price showed as, 61% per both Y Charts and IndexArb, while the dividend derived from $10k invested as $1k in each of the ten was 39% for both.
In most months IndexArb dividend projection is always the higher of the two. In March, April, and May however, the market caught up and passed the Index Arb forecasters for higher yields and lower prices. That happens when a more expensive (Caterpillar) stock on the IndexArb list fills-in for the less expensive (Coca-Cola) stock on the YCharts edition.
This gap between high share price and low dividend per $1k (or oversold condition) means, no matter which chart you read, 26 of these 30 are low risk and low opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend for August 13, 2020 was $21.66 per YCharts or $21.31 in the IndexArb reckoning.
One that cut its dividend in March, Boeing (BA), needs to re-learn and be certified that it knows how to fly and has to get way down before it can get airborne again. BA may be in worse shape than was GE when excused from the Dow index.
Bear in mind that 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 times to add to your position to best improve your dividend yield.
Price Drops or Dividend Increases of 3% to 52.5% Could Get All Ten Dow Dogs Back to “Fair Price” Rates For Investors
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, Exxon, Dow, Walgreens, and Pfizer are at or well-under the goal of closing the gap between share price and dividend from $1k invested.
This illustration shows that five low priced stocks (CVX; VZ; KO; JPM; IBM) need to trim down prices between three and forty-one dollars. Then one behemoth priced stock holds the key to realizing the 50/50 goal for share prices equalling dividend payouts from $10k invested. If 3M, could shed just eighty-nine dollars in share price, the top ten as a group could attain that elusive 50/50 goal.
Actionable Conclusions: (23-32) Dow Index Showed 10.8% To 23.06% Top Ten Upsides To August 13, 2021; (33) Two Downsides Of -2.97 and -7.25% Were 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 2.36% Advantage For 5 Highest Yield, Lowest Priced of 10 Dow Dogs As Of August 13, 2021
Ten top Dow dogs were culled by yield for their monthly update. Yield (dividend / price) results as verified by YCharts did the ranking.
As noted above, top ten Dow dogs selected 8/13/20 revealing the highest dividend yields represented eight of the eleven sectors in Y-Charts and IndexArb reckonings.
Actionable Conclusions: Analysts Expected 5 Lowest-Priced of the Ten Highest-Yield Dow Dogs (34) To Deliver 12.43% Vs. (35) 12.15% Net Gains by All Ten Come August 13, 2021
$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 2.36% more gain than from $5,000 invested in all ten. The third lowest priced, Exxon Mobil Corp (XOM), was projected to deliver the best net gains of 24.41%.
The five lowest-priced Dow top-yield dogs for August 13 were: Pfizer (PFE); Walgreens Boots Alliance Inc (WBA); Exxon Mobil (XOM); Dow Inc. (DOW); Coca-Cola Co (KO), with prices ranging from $38.17 to $48.38.
Five higher-priced Dow top-yield dogs for August 13 were: Verizon Communications Inc (VZ); Chevron (CVX); JPMorgan Chase & Co (JPM); International Business Machines (IBM); 3M Co (MMM), whose prices ranged from $58.52 to $165.86.
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.
Lest there be any doubt about the recommendations in this article, below is the list of four August 13 stocks showing dividends for $1k invested exceeding their single share prices:
Exxon, Dow, Walgreens, and Pfizer are at or well-under the goal of closing the gap between share price and dividend from $1k invested.
The dogcatcher hands off recommendation refers to one that cut its dividend in March, Boeing (BA), needs to re-learn (and be certified) how to fly and has to get way down before it can get airborne again. BA may be in worse shape than was GE when booted off the Dow index.
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. Dogs photo: cnbc.com
Get the Dogs Of The Dow ‘Safer’ Dividend Dogcatcher Story
Click here to subscribe to The Dividend Dogcatcher & get more information.
Catch A Dog On Facebook At 8:45 AM every NYSE trade day on Facebook/Dividend Dog Catcher, A Fredrik Arnold live video highlights a portfolio candidate in the Underdog Daily Dividend Show!
Root for the Underdog. Comment below on any stock ticker to make it eligible for my next FA follower report.
Disclosure: I am/we are long CSCO, INTC, PFE. 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.