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 three of the ten live up to the ideal of having their annual dividends from a $1K investment exceed the single share price. Many more show prices within $10 of meeting that goal.
With renewed downside market pressure, it may be possible for (CSCO, CVX, INTC, KO, MRK, RTX, VZ, and WBA) to join the elite lowest priced high-yield Dow stocks, DOW, XOM, and PFE, three ideal dogs, and become fair-priced again 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 12.9% To 26.4% Net Gains From Top Ten Dow Dogs By July 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 July 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 by single analysts were not applied. Ten probable profit-generating trades projected to July 20, 2021, were:
Pfizer Inc. (PFE) was projected to net $263.31, based on dividends, plus the median target price estimates from eighteen analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 30% less than the market as a whole.
Merck & Co, Inc. (NYSE:MRK) was projected to net $216.42, based on the median of target estimates from twenty analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 50% less than the market as a whole.
Raytheon Technologies Corp. (RTX) was projected to net $215.17, based on dividends, plus the median of target prices estimated by twenty-one analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 33% over the market as a whole.
Chevron Corp. (CVX) netted $166.84 based on the median of target price estimates from twenty-five analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 30% greater than the market as a whole.
Coca-Cola Co. (KO) was projected to net $155.54, 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 55% less than the market as a whole.
Exxon Mobil Corp. (XOM) was projected to net $150.95, 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 32% over the market as a whole.
JPMorgan Chase & Co. (JPM) was forecast to net $139.16, based on a 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 19% above the market as a whole.
McDonald’s Corp. (MCD) was projected to net $137.48 based on the median of target price estimates from twenty-one analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 30% under the market as a whole.
UnitedHealth Group Inc. (UNH) was projected to net $135.14, based on 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 28% less than the market as a whole.
Johnson & Johnson (JNJ) was projected to net $129.04, based on the median of target price estimates from thirty-five analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 34% less than the market as a whole.
The average net gain in dividend and price was estimated at 17.09% on $10k invested as $1k in each of these top ten Dow Index stocks. This gain estimate was subject to average risk/volatility 1% under 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 June 19, 2020 Dow 30 By Yield
Source: YCharts.com and indexArb.com
Actionable Conclusions (11-20): 10 Top Dow Dividend Stocks By Yield Ranged 4.56% To 7.57% Per YCharts And 3.63% To 7.63% Per IndexArb
Top ten Dow dogs as of 6/19/20 by YCharts and IndexArb represented eight of eleven Morningstar sectors. Both listed the same ten stocks in dissimilar order disagreeing on the order of their eighth and ninth place choices.
Top yielding two energy stocks, Exxon Mobil Corp.  and Chevron Corp. , plus lone basic materials stock, Dow Inc. (NYSE:DOW)  were the first three of the top ten on both lists.
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, Pfizer Inc. .
There was also total agreement on the sixth place holder, the communication services representative, Verizon Communications Inc. (VZ). The second healthcare representative, placed seventh on both lists, Walgreens Boots Alliance, Inc. (WBA) .
Then the market-sourced YCharts and arbitrage-rated IndexArb disagreed on the order of the top industrial, and top financial services representatives. The industrial services leader was eighth per YCharts bur 9th per IndexArb, 3M Co. (MMM) . The lone financial services member placed ninth on YCharts and eighth on IndexArb, JPMorgan Chase & Co. .
There were no disagreements about the tenth slot, it was the consumer defensive stalwart, Coca-Cola Co. , to complete the June 19 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 6/19/2020. The two sets of charts show the variation of dividends calculated by YCharts.com estimates and those from the arbitrage firm IndexArb.com.
This month seven 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). The dividend dogcatcher priority is to select stocks whose dividends from $1K invested exceed their single share price. In the Dow 30 Index, three of top ten now meet that goal: Dow; Exxon Mobil Corp.; Pfizer Inc. are dogcatcher certified as buys to hold forever this month.
Actionable Conclusion (21): Dow Dogs Still Overbought
The aggregate single share price vs. dividend yield for the top ten Dow dogs was 60% per YCharts and 59% per IndexArb, while the dividend derived from $10k invested as $1k in each of the ten was 40% for Y Charts and 41% for IndexArb. 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 will happen 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, 27 of these 30 are low risk and low opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend for May 20, 2020, was $21.11 per YCharts or $20.70 in the IndexArb reckoning.
One that cut its dividend in March, Boeing (BA), needs to re-learn 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 51.5% 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, Dow, Exxon, 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 six low priced stocks (WPC; 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-two dollars in share price, the top ten as a group could attain that elusive 50/50 goal.
Actionable Conclusions: (22-31) Dow Index Showed 11.2% To 22.7% Top Ten Upsides To May 20, 2021; (32) Two Downsides Of -4.21 and -7.32% Showed By Broker 1 Yr. Targets for July
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 8.35% Advantage For 5 Highest Yield, Lowest Priced of 10 Dow Dogs As Of June 19, 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 6/19/20 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 (33) To Deliver 12.99% Vs. (34) 11.99% Net Gains by All Ten Come June 19, 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 8.35% more gain than from $5,000 invested in all ten. The very lowest priced, Pfizer Inc., was projected to deliver the best net gains of 26.23%.
The five lowest-priced Dow top-yield dogs for June 19 were: Pfizer; Dow Inc.; Walgreens Boots Alliance Inc.; Exxon Mobil; Coca-Cola Co., with prices ranging from $33.42 to $46.02.
Five higher-priced Dow top-yield dogs for June 19 were: Verizon Communications Inc.; Chevron; JPMorgan Chase & Co.; International Business Machines; 3M Co., whose prices ranged from $56.16 to $158.15.
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 very contrarian.
Lest there be any doubt about the recommendations in this article, below is the list three June 19 stocks showing dividends for $1k invested exceeding their single share prices:
Dow, Exxon, 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, needs to re-learn 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.
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.
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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.
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.