While more than half this new collection of Dow Industrials is too pricey and reveals only skinny dividends, the ten lowest priced Dogs of the Dow are worth consideration. 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. Several more show prices within $10 of meeting that goal.
With renewed downside market pressure, it may be possible for Cisco (CSCO), Intel Corp. (INTC), Coca-Cola Co. (KO), Merck & Co. Inc. (MRK), and Verizon Communications Inc. (NYSE:VZ) to join the three elite lowest priced high-yield Dow stocks, Chevron Corp. (CVX), Dow Inc. (DOW), and Walgreens Boots Alliance (WBA), (the three ideal dogs) and also fair-priced with their annual yield (from $1K invested) meeting or exceeding their single share prices by year-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 12.33% To 48.62% Net Gains From Top Ten Dow Dogs By October 1, 2021
Seven 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, this September 2020 yield-based forecast for Dow dogs, as graded by Wall St. wizard estimates, was 70% accurate.
Estimates based on dividend returns from $1,000 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 October 1, 2021 were:
Chevron Corp. netted $486.19 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 26% greater than the market as a whole.
Cisco Systems Inc. was projected to net $289.99, 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 13% less than the market as a whole.
Goldman Sachs Group Inc. (GS) was projected to net $270.30, based on dividends, plus the median of target prices estimated by twenty-six analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 39% over the market as a whole.
JPMorgan Chase & Co. (JPM) was forecast to net $216.13, based on a 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 15% over the market as a whole.
Walgreens Boots Alliance was projected to net $193.48, 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 36% under the market as a whole.
Merck & Co. Inc. was projected to net $190.89, 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 57% less than the market as a whole.
The Travelers Companies (NYSE:TRV) was projected to net $182.80, based on the median of target price estimates from twenty analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 15% less than the market as a whole.
International Business Machines Corporation (IBM) was projected to net $173.54, based on dividends, plus the median target price estimates from sixteen analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 16% greater than the market as a whole.
Intel Corp. was projected to net $123.65 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 28% under the market as a whole.
Coca-Cola Co. was projected to net $123.34, 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 21.6% on $10k invested as $1k in each of these top ten Dow Index stocks. This gain estimate was subject to average risk/volatility 9% 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 October 1, 2020 Dow 30 By Yield
Source: YCharts.com and IndexArb.com
Actionable Conclusions (11-20): 10 Top Dow Dividend Stocks By Yield Ranged 3.15% To 7.33% Per YCharts And 3.28% To 7.58% Per IndexArb
Top ten Dow dogs as of 10/1/20 by YCharts and IndexArb represented eight of eleven Morningstar sectors. Both listed nine of ten stocks shuffling the sixth and seventh slots and disagreeing on the choice for tenth position.
Lone energy stock, Chevron Corp. , plus lone basic materials stock, Dow Inc.  were the top two of ten on both lists.
Third place on both the YChart and IndexArb lists went to the top technology firm, International Business Machines Corp. . A second technology stock placed seventh according to YCharts but moved up to sixth place per IndexArb reckoning was Cisco Systems .
Fourth on both lists was a healthcare representative, Walgreens Boots Alliance Inc. . IndexArb also had a healthcare representative in tenth place, Merck & Co. Inc. .
The fifth place holder on both lists was the communication services representative, Verizon Communications Inc. .
The top financial services member placed sixth per YCharts, but placed seventh by IndexArb, JPMorgan Chase & Co. . Then the industrials leader was eighth per both, 3M Co. (NYSE:MMM), . Following in the ninth slot was the consumer defensive stalwart, Coca-Cola Co. , on both charts. There was total disagreement on the final slot. YCharts put another financial services firm in tenth, The Travelers Companies Inc. , while IndexArb had the previously mentioned healthcare representative there, Merck & Co. Inc.  to complete the October 1 top ten 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 ten Dow dogs by yield as of market close 10/1/2020. 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 a $0.64 difference in estimated prices between YCharts and IndexArb that moved the percentages one point.
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). A dividend dogcatcher priority is to select stocks whose dividends from $1K invested exceed their single share price. In this October Dow 30 Index, three of the top ten now meet that goal: Chevron Corp., Dow Inc., and Walgreens Boots Alliance Inc. 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 ten Dow dogs was one percent this month. Price showed as 63% per YCharts and 62% for IndexArb, while the dividend derived from $10K invested as $1K in each of the ten was 37% for YCharts and 38% for IndexArb.
In October, as in most months, IndexArb dividend projection is the higher of the two. However, in March, April, and May, the market caught up and passed the IndexArb forecasters for higher yields and lower prices. That happens when a more expensive (Travelers) stock on the IndexArb list fills-in for the less expensive (Merck) stock on the YCharts edition. This month the roles reversed and all is well 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, 27 of these 30 are low risk and low opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend for October 1, 2020 was $22.54 per YCharts or $21.90 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 General Electric (NYSE:GE) when excused from the Dow index. 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.
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 pullbacks 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 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, Chevron, Dow, and Walgreens are well under the goal of closing the gap between share price and dividend from $1K invested.
This illustration shows that five low priced stocks (Verizon, Coke, JPMorgan, International Business Machines, and Cisco) need to trim down prices between one and forty-one dollars. Then two behemoth priced stocks hold the key to realizing the 50/50 goal for share prices equaling dividend payouts from $10K invested. If 3M could shed just eighty-three dollars in share price and The Travelers Companies sheds $50, the top ten as a group could attain that elusive 50/50 goal.
Actionable Conclusions: (22-31) Dow Index Showed 12.29% To 42.29% Top Ten Upsides To October 1, 2021; (32) No Downside Was 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 6.37% Disadvantage For 5 Highest Yield, Lowest Priced of 10 Dow Dogs As Of October 1, 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 10/1/20 revealing the highest dividend yields represented eight of the eleven sectors in YCharts and IndexArb reckonings. Basic Materials went missing.
Actionable Conclusions: Analysts Expected 5 Lowest-Priced of the Ten Highest-Yield Dow Dogs (34) To Deliver 12.20% Vs. (35) 14.78% Net Gains by All Ten Come September 8, 2021
$5,000 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 17.47% LESS gain than from $5,000 invested in all ten. The sixth lowest priced, Chevron Corp., was projected to deliver the best net gains of 33.21%.
The five lowest-priced Dow top-yield dogs for October 1 were: Walgreens Boots Alliance Inc., Cisco Systems Inc., Dow Inc., Coca-Cola Co., and Verizon Communications Inc., with prices ranging from $36.10 to $59.96.
Five higher-priced Dow top-yield dogs for October 1 were: Chevron, JPMorgan Chase & Co., The Travelers Companies Inc., International Business Machines, and 3M Co., whose prices ranged from $78.97 to $163.17.
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 three October 1 stocks showing dividends for $1K invested exceeding their single share prices:
Chevron, Dow, and Walgreens are all well under the goal of closing the gap between share price and dividend from $1K invested and Cisco is within $1 of joining those three.
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. 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.
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. Dog photo: newallwallpaper.blogspot.com
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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.