July Dogs Of The Dow Show 3 To Buy And 2 To Watch

Foreword

While more than half of this collection of Dow Industrials is too pricey and reveals only skinny dividends, three of the five lowest-priced Dogs of the Dow are ready to buy. This month three of the five, Intel Corp (INTC), Walgreens Boots Alliance (WBA), and Dow Inc (DOW) live up to the dogcatcher ideal of annual dividends from $1K invested exceeding their single share prices. Furthermore, three more showed prices within $6.25 of meeting that goal.

With renewed downside market pressure of 65.3%, it would be possible for all ten (even AMGN) to become elite fair-priced dogs with their annual yield (from $1K invested) meeting or exceeding their single share prices by year’s end.

[See a summary of top ten fair-priced July Dow Dogs in Actionable Conclusion 21 near the middle of this article.]

Actionable Conclusions (1-10): Brokers Expect 32.59% To 55.39% Net Gains From Top-Ten Dow Dogs By July 2023

Three of ten top dividend-yielding Dow dogs (tinted gray in the chart below) were among the top ten gainers for the coming year based on analyst 1-year target prices. So, this July 2023 yield-based forecast for Dow dogs, as graded by Wall St. wizard estimates, was 30% accurate.

Estimated 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 2022-23 data points for the projections below. Note: one-year target prices estimated by lone analysts were not applied. Ten probable profit-generating trades projected to July 1, 2023, were:

Boeing Co (BA) was forecast to net $553.92, based on the median of target price estimates from nineteen analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 37% greater than the market as a whole.

The Walt Disney Co (DIS) was projected to net $539.82, based on the median of target estimates from twenty-eight analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 21% over the market as a whole.

Intel Corp was projected to net $419.85, based on the median of target price estimates from thirty-one analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 32% under the market as a whole.

Dow Inc was projected to net $386.82, based on the median of target prices estimated by nineteen analysts, less broker fees. A Beta number is still not available for DOW.

Goldman Sachs Group Inc (GS) was projected to net $380.53, based on dividends, plus the median of target price estimates from twenty-six analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 39% over the market as a whole.

American Express Co (AXP) was projected to net $368.76, 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 15% greater than the market as a whole.

Caterpillar Inc (CAT) was projected to net $355.17 based on the median of target price estimates from twenty-five analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 10% more than the market as a whole.

Nike Inc (NKE) netted $354.36 based on the median of target price estimates from thirty-one analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 4% less than the market as a whole.

JPMorgan Chase & Co (JPM) was projected to net $347.33, based on the median of target price estimates from twenty-five analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 16% more than the market as a whole.

Microsoft Corp (MSFT) was projected to net $325.98, based on dividends, plus the median target price estimates from forty-four analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 6% less than the market as a whole.

The average net gain in dividend and price was estimated at 40.33% on $10k invested as $1k in each of these top ten Dow Index stocks. This gain estimate was subject to average risk/volatility equal to 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 July 2022 Dow 30 By Yield

Actionable Conclusions (11-20): 10 Top Dow Dividend Stocks By Yield Ranged 3.16% To 5.42% Per YCharts And 3.34% To 5.42% Per IndexArb

Top ten Dow dogs as of 7/1/22 represented eight of eleven Morningstar sectors by YCharts and IndexArb. Nine of the ten stocks were the same on the two lists and the order by yield for the sixth and seventh reversed and the twelfth differed on the two lists this month.

Both YCharts and IndexArb put the lone basic materials dog in first place, Dow Inc [1]. However, the two lists, YCharts and IndexArb, exchanged the positions of the communication services sector member and the top healthcare member on their lists. YCharts placed communications second in the top ten, Verizon (VZ)[2][3]. For IndexArb, the healthcare member placed second, Walgreens Boots Alliance [2][3] and Verizon was third on the IndexArb tally.

Then three technology dogs were placed in the fourth, sixth, and eighth positions, International Business Machines (IBM) [4], Intel Corp [6] and Cisco Systems Inc (CSCO) [8] per YCharts and IndexArb.

The two lists agreed that the lone industrials dog in the top ten was fourth, 3M Co (MMM) [4], and that the lone energy representative was seventh, Chevron (CVX) [7]. They also agreed that ninth place belonged to the financial services firm, JPMorgan Chase & Co [9].

Finally, the two lists disagreed on the tenth place finish, with YCharts favoring another healthcare firm, Amgen Inc (AMGN) [10] [11]. Meanwhile, IndexArb selected the financial services firm, Goldman Sachs Group [10] [15], to complete their July top ten dogs of the Dow by yield lists.

Dividend Vs. Price Results

Graphs above show the relative strengths of the top ten Dow dogs by yield as of market close 7/1/2022. 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 $6.60 difference in total estimated single share dividends between YCharts and IndexArb top ten, resulting in a $0.21 total cost per dividend dollar differential. These numbers were just enough to show a 1% variance on the pie charts.

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. As mentioned above, that condition was reached by three of the five lowest-priced Dogs of the Dow, Intel Corp, Walgreens Boots Alliance, and Dow Inc live up to the dogcatcher ideal of annual dividends from $1K invested exceeding their single share prices. Furthermore, two more showed prices within $3.60 of meeting that goal as of July 1.

Actionable Conclusion (21): Seven Of Ten Top Dow Dogs Are Overbought

This gap between high share price and low dividend per $1k (or oversold condition) means, no matter which chart you read, 24 of all 27 Dow dividend payers are low risk and low opportunity dogs, with the non-dividend payers being particularly dismal. The Dow top-ten average cost per dollar of annual dividend for July 1, 2022, was $31.22 per YCharts or $31.01 by the IndexArb reckoning.

One that cut its dividend after March 2020, Boeing, has re-learned (and is now certified that it knows how to fly in some countries) and is thus prepared to take off again if someone ever orders planes made in the USA again. The used plane market, however, is soaring. BA may not ever recover from being in worse shape than was GE when excused from the Dow index.

As for DIS, the magic kingdom may be close to reinstating a dividend but don’t hold your breath. However, the newest of the three latest no-dividend stocks on the block, CRM, is simply overpriced. Those three non-dividend payers are the true down in the dumps dogs of the Dow, despite analysts high-balling their future share price estimates.

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. Plenty of pull-back opportunities appear to be ahead.

Price Drops Or Dividend Increases 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 this illustration shows, three are ideally priced. Besides Intel Corp, Walgreens Boots Alliance, and Dow Inc breaking into the ideal zone, two more low-priced stocks are within $1.03 to $3.60 of making the grade (VZ, and CSCO).

Five more (IBM; MMM; CVX; JPM; AMGN), however, need to trim prices between $50.78 and $157.46 to attain that elusive 50/50 goal.

The alternative, of course, would be that these companies raise their dividends, but that is a lot to ask in these highly disrupted, inflationary, yet cash-rich times. Mr. Market is much more effective at moving prices up or down to appropriate amounts.

Actionable Conclusions: (22-31) The Dow Index Showed 33.74% To 55.39% Top Ten Upsides To July 2023; (32) No Downsides Were Revealed By Broker 1-Yr. Targets

To quantify top dog rankings, analyst median price target estimates provided 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 20.49% Advantage For 5 Highest-Yield, Lowest-Priced of 10 Dow Dogs As Of July 1, 2023

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 7/1/22 by both the YCharts and IndexArb methods revealing the highest dividend-yields represented eight of the eleven sectors in Y-Charts and IndexArb reckonings. Consumer Cyclical went missing. (Real Estate is not reported and Utilities has its own Dow Index.)

Actionable Conclusions: Analysts Expected 5 Lowest-Priced Of The Ten Highest-Yield Dow Dogs (34) To Deliver 29.11% Vs. (35) 24.16% Net Gains By All Ten Come July 1, 2023

$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 20.49% more gain than from $5,000 invested in all ten. The very lowest-priced, Intel Corp, showed top analyst-estimated gains of 41.99%.

The five lowest-priced Dow top-yield dogs for July 1 were: Intel Corp; Walgreens Boots Alliance Inc; Cisco Systems Inc; Verizon Communications Inc; Dow Inc, with prices ranging from $36.34 to $51.69.

Five higher-priced Dow top-yield dogs for July 1 were: JPMorgan Chase & Co; 3M Co; International Business Machines Corp; Chevron Corp; Amgen Inc, whose prices ranged from $114.05 to $245.55.

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 90% accurate on the direction of change and just 0% to 15% 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 were quite contrarian. In the first half of 2021, most dividend stock price actions exceeded all analyst expectations. The last half of 2021 was still gangbusters. The 2022 Summer sag may free up five or more Dow dogs, sending them into the ideal zone where returns from $1k invested equal (or exceed) their single-share price.

Afterword

Lest there be any doubt about the recommendations in this article, this month there were three Dow Index stocks showing dividends for $1k invested exceeding its single share price: Intel Corp, Walgreens Boots Alliance, and Dow Inc.

The dogcatcher’s hands-off recommendations are still in place referring to one that cut its dividend in March 2020. While Boeing has re-learned (and is certified in certain countries) how to fly, it still has to find customers before it can get airborne again. BA faces strong headwinds to stay on the Dow index (despite analyst optimism for the lone American commercial air-crafter).

Also keep hands-off the newest non-dividend member of the Dow, Salesforce.com Inc (CRM), until it declares a dividend from $1K invested greater than its single share price.

While subscriptions keep the ship afloat, Disney needs audiences to get strapped back into buying tickets to watch and ride before resuming a dividend. The DIS parks are now open in CA & FL. Will anybody play there or go to movies again? If so, when will the DIS dividend return? Looks like all viewer loyalties have switched to Apple productions and streaming entertainment options. Happily, Disney franchised offerings compete well in the streaming market.

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.