4 Dogs Of The Dow Break Out And 3 Break Down In November

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Foreword

While more than half of this new collection of Dow Industrials is too pricey and reveals only skinny dividends, the 10 lowest-priced Dogs of the Dow are worth consideration. This month four of the 10 live up to the ideal of annual dividends from $1K invested exceeding the single share price. Several more, show prices within $10 of meeting that goal.

With renewed downside market pressure, it may be possible for (INTC, KO, MRK, and VZ) to join the four elite lowest priced high-yield Dow stocks, CVX, CSCO, DOW, and WBA, (the four ideal dogs) and also fairly 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 beckon.

Actionable Conclusions (1-10): Brokers Targeted 22.21% To 47.19% Net Gains From Top-Ten Dow Dogs By November 1, 2021

Six of 10 top dividend-yielding Dow dogs were verified as also being among the top ten gainers for the coming year based on analyst one-year target prices. (They are tinted gray in the chart below.) So, this November 2020 yield-based forecast for Dow dogs, as graded by Wall St. wizard estimates, was 60% accurate.

Estimates based on dividend returns from $1k invested in the 10 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. 10 probable profit-generating trades projected to October 1, 2021 were:

Source: YCharts.com

Chevron Corp. (CVX) netted $471.98 based on the median of target price estimates from 26 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 26% greater than the market as a whole.

Cisco Systems Inc. (CSCO) was projected to net $386.42, based on the median of target price estimates from 26 analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 13% less than the market as a whole.

Goldman Sachs Group Inc. (GS) was projected to net $358.83, based on dividends, plus the median of target prices estimated by 26 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 39% over the market as a whole.

International Business Machines Corporation (IBM) was projected to net $310.57, based on dividends, plus the median target price estimates from 14 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 16% greater than the market as a whole.

Merck & Co. Inc. (MRK) was projected to net $289.82, based on the median of target estimates from 21 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 57% less than the market as a whole.

Intel Corp. (INTC) was projected to net $255.45 based on the median of target price estimates from 40 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 28% under the market as a whole.

Boeing Co. (BA) was projected to net $255.45, based on the median of target price estimates from 20 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 37% greater than the market as a whole.

JPMorgan Chase & Co. (JPM) was forecast to net $227.99, based on a the median of target price estimates from 22 analysts, including annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 15% over the market as a whole.

Walgreens Boots Alliance (WBA) was projected to net $227.18, based on dividends, plus the median of target price estimates from 22 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 56% under the market as a whole.

Johnson & Johnson (JNJ) was projected to net $222.11, based on dividends, plus the median of target price estimates from 17 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 32% less than the market as a whole.

The average net gain in dividend and price was estimated at 29.81% on $10k invested as $1k in each of these top 10 Dow Index stocks. This gain estimate was subject to average risk/volatility 5% under the market as a whole.

Source: marketwatch.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 October 29, 2020 Dow 30 By Yield

Source: YCharts.com and indexArb.com

Actionable Conclusions (11-20): 10 Top Dow Dividend Stocks By Yield Ranged 3.22% To 7.5% Per YCharts And 3.51% To 7.76% Per IndexArb

Top 10 Dow dogs as of 10/29/20 by YCharts and IndexArb represented eight of 11 Morningstar sectors. Both listed the same 10 stocks while shuffling the second and third, seventh and eighth, and ninth and tenth slot-holders.

Lone energy stock, Chevron Corp. [1], was the top dog on both lists. However the lone basic materials stock, was second per YCharts but third according to IndexArb, that was Dow Inc. (DOW) [2][3]. Second place per IndexArb belonged to the first of two technology dogs in the top 10, International Business Machines [3][2].

Fourth place on both the YChart and IndexArb lists went to the top healthcare firm, Walgreen’s Boots Alliance [4]. The fifth place holder on both lists was the communication services representative, Verizon Communications Inc. (VZ)[5]. A second technology stock placed sixth on both lists, Cisco Systems [6].

The lone industrials leader was seventh per YCharts, but eighth on the IndexArb list 3M Co., (MMM) [7][8]. Top financial services member placed eighth per YCharts, but placed seventh by IndexArb, JPMorgan Chase & Co. [8][7].

Following in the ninth slot, for YCharts was the consumer defensive stalwart, Coca-Cola Co. (KO) [9][10] which placed tenth for IndexArb. Thus, ninth for Index Arb was held by Merck & Co. Inc [10][9] to complete the October 29 top 10 list 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 10 Dow dogs by yield as of market close 10/29/2020. 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 an $11.00 difference in estimated dividends between YCharts and IndexArb, that moved the percentages one point.

This month, six of the top 10 Dow dogs show an overbought condition (in which aggregate single share price of the 10 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 this October Dow 30 Index, four of the top 10 now meet that goal: Chevron Corp., Dow Inc., Walgreens Boots Alliance Inc., and Cisco Systems are dogcatcher certified as buys to hold forever this month.

Actionable Conclusion (21): Dow Dogs Still Overbought

The difference in aggregate single share price vs. dividend yield for the top 10 Dow dogs was one percentage point this month. Price showed as, 61% per Y Charts and 60% for IndexArb, while the dividend derived from $10k invested as $1k in each of the 10 was 39% for YCharts and 40% for IndexArb.

In November, as in most months IndexArb dividend projection is 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 stock on the IndexArb list fills in for a less expensive stock on the YCharts edition. This month all selections equalized in the top 10 with the IndexArb showing the higher yield.

This gap between high share price and low dividend per $1k (or oversold condition) means, no matter which chart you read, 24 of these 30 are low risk and low opportunity Dow dogs. The Dow top 10 average price per dollar of annual dividend for October 29, 2020 was $22.62 per YCharts or $21.94 in the IndexArb reckoning.

One that cut its dividend in March, Boeing, 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, nevertheless broker optimism put BA in the top 10 Gainer list this month. As for Disney (NYSE:DIS), the magic kingdom may have to sell some castles to stay solvent. The new no dividend stock on the block, Salesforce (NYSE:CRM), is simply overpriced. These are the true down dogs of the Dow,

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.

Price Drops or Dividend Increases of 1% to 52.5% Could Get All 10 Dow Dogs Back to “Fair Price” Rates For Investors

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 you can see, Chevron, Dow, Walgreens, and Cisco are well under the goal of closing the gap between share price and dividend from $1k invested.

This illustration shows that five more low priced stocks (VZ, KO, JPM, IBM, MRK) need to trim prices between $1 and $41. 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 $83 in share price, the top 10 as a group could attain that elusive 50/50 goal.

Source: YCharts.com

Actionable Conclusions: (22-31) Dow Index Showed 19.11% To 40.7% Top 10 Upsides To October 29, 2021; (32) No Downside Was Revealed By Broker One-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 14.65% Disadvantage For Five Highest Yield, Lowest Priced of 10 Dow Dogs As Of October 29, 2021

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

Source: YCharts.com

As noted above, top 10 Dow dogs selected 10/29/20 revealing the highest dividend yields represented eight of the 11 sectors in Y-Charts and IndexArb reckonings. Basic Materials went missing. (Real Estate is not reported and Utilities has its own Dow Index.)

Actionable Conclusions: Analysts Expected Five Lowest-Priced of the 10 Highest-Yield Dow Dogs (34) To Deliver 21.52% Vs. (35) 25.21% Net Gains by All 10 Come October 29, 2021

Source: YCharts.com

$5k invested as $1k in each of the five lowest-priced stocks in the top 10 Dow Dividend kennel by yield were predicted by analyst one-year targets to deliver 17.47% LESS gain than from $5k invested in all 10. The sixth lowest priced, Chevron Corp., was projected to deliver the best net gains of 33.21%.

Source: YCharts.com

The five lowest-priced Dow top-yield dogs for October 29 were: Walgreens Boots Alliance Inc., Cisco Systems Inc., Dow Inc., Coca-Cola Co., Verizon Communications Inc., with prices ranging from $33.52 to $56.76.

Five higher-priced Dow top-yield dogs for October 29 were: Chevron, Merck & Co. Inc., JPMorgan Chase & Co., International Business Machines, 3M Co., whose prices ranged from $68.80 to $158.48.

The distinction between five low-priced dividend dogs and the general field of 10 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.

Afterword

Lest there be any doubt about the recommendations in this article, below is the list of four October 29 stocks showing dividends for $1k invested exceeding their single share prices:

Chevron, Dow, Walgreens, and Cisco are all well under the goal of closing the gap between share price and dividend from $1k invested and Verizon and Coca-Cola are within $9 of joining those four.

The dogcatcher hands off recommendation refers to one that cut its dividend in March, Boeing, 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 (despite analyst optimism for the lone American commercial aircrafter). Also keep hands off the new non-dividend member of the Dow, Salesforce.com Inc. until it declares a dividend from $1K invested greater than its single share price. Disney needs audiences to get back to buying tickets to watch and ride before resuming a dividend.

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. Dog photo: marketwatch.com

Disclosure: I am/we are long CSCO, INTC. 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.