NWA-PCUG Newsletter Article
Stock Ranking by PC
by Bob Frye, July 98
With the strong stock market of the last several years, more and more individuals are interested in how they can share in the economic benefits that other investors have enjoyed. But what stock should I buy? A popular method many individuals use is the "dogs of the Dow," or "Dow dividend," investment strategy.
Popularized by Michael O'Higgins book, "Beating the Dow," in 1991, and by David and Tom Gardner of Motley Fool fame, you rank the 30 companies found in the Dow Jones Industrial Average (DJIA) by their dividend yield. By buying the ten highest yielding DJIA stocks (some authors advocate buying the five lowest priced, or other variations) and holding them for one year, this strategy has a good chance of out performing the Dow average, as well as most mutual funds. In his book "How to Retire Rich," James O'Shaughnessy uses a similar dividend yield ranking approach to pick utility stocks.
Many examples of this dividend strategy use January as the month to rank and buy stocks. I wondered how stock picks would change if I bought stocks in some other month. I also wondered what stocks would be picked if you applied the dividend strategy to the Standard & Poor's 100. How would the list change if I used earnings-per-share (EPS) instead of dividend yield? I found using the Sort function found in most Table or spreadsheets programs was an easy way to answer these questions.
When using a Table to study the Dow dividend strategy, I create a three-column table with 30 rows. I put the stock symbol in column one, the dividend yield in column two and the closing price in column three (optional). Sort the table by column two (descending order). This puts the highest yielding stocks at the top of the list. As an option, I highlight the top ten yielding stocks and re-sort the table by ascending price (column three). You may have to set the option tab in the Sort function to keep the whole table from being re- sorted (look for an option like "column-only").
Spreadsheet rows and columns are typically even easier to use; just highlight the rows/columns to sort, select sort order and you're done. I find spreadsheets are a better choice for doing multiple sorts (for example, sorting by dividend yield, then EPS, then price), and for handling large numbers of stocks, like the S&P 100. To answer the question about using another month other than January, I put the 30 DJIA stock symbols in column "A," then copied this column to every other following column (C, E, G, etc). I put the appropriate yield in column B for January, D for February, etc until I have a year's worth of information. Sort each column pair (A/B, C/D, etc) by descending order of dividend yield. Then its just a matter of inspection to see how often a particular Dow stock appears in the top ten.
I've found the Sort function a useful aid in doing "what if" analysis when looking for stock purchases. Give it a try; it may be the investment help you've been looking for.Click here to return to top