Top 10 March Industrial Goods Dogs Signal 4.9% To 25.3% Gains

 |  Includes: CAT, ETN, GD, GE, HI, HON, ITW, LMT, MDU, SNA
by: Fredrik Arnold

Dog dividend methodology was used in this article to reveal possible buy opportunities. In the fall of 2011 this report series started tracking eight major market sectors as listed by Yahoo Finance: basic materials (BMats), consumer goods (ConGo), financials (Fins), healthcare (Heal), industrial goods (IndiGo), services (Svcs), technology (Tec), and utilities (Utes).

Briefly, Investor Glossary, an online investor primer, recently offered this description of dividend dog methodology: "...[I]nvented to find the 10 stocks of the 30-stock Dow Jones Industrial Average with the highest yield (dividend / price) and invest equally in each, [t]he Dow dividend theory also requires that you repeat this process once a year.

Dow dividend dog theory choices from Yahoo sectors were supplemented with one year mean target price estimates from broker analysts in this article.

Below, the Arnold Industrial Goods Selections for March were disclosed.

Dog Metrics Flushed Out Top Industrial Goods Stocks

Ten industrial goods sector stocks showing the biggest Yahoo screened dividend yields March 15 represented six industries. Top industrial goods sector stock, Veolia Environnement (NYSE:VE) was one of two waste management firms in the top ten. The other was Waste Management (NYSE:WM) in fourth place. Aerospace and defense-major firms took second, seventh, and tenth slots: Lockheed Martin Corporation (NYSE:LMT); Raytheon Company (NYSE:RTN); Northrop Grumman (NYSE:NOC). CRH plc (NYSE:CRH) in third place is a cement firm. Diversified machinery was represented by two firms in the top ten: Ampco-Pittsburgh Corp (NYSE:AP) in fifth place, and General Electric (NYSE:GE) in ninth, CompX International (NYSEMKT:CIX) in sixth makes machine tools. The remaining firm in the top ten represented industrial electrical equipment: LSI Industries Inc. (NASDAQ:LYTS) in eighth place.

Dividend vs. Price Results Compared to Dow Dogs

Below is a graph of the relative strengths of the top ten industrial goods dogs by yield as of market close 3/15/2013 compared to those of the Dow. Historic projected annual dividend history from $1000 invested in each of the ten highest yielding stocks and the total single share prices of those ten stocks created the data points shown in green for price and blue for dividends.

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Actionable Conclusion: Industrial Goods Dogs Flash Mixed Signal as Dow Gets Bullish

March's industrial goods collection of dividend payers continued a bullish price course set since November, 2012. Aggregate dividend from $10k invested in each of the top ten industrial stocks, nevertheless, rose (bearishly) at a rate of 8.6% since February while total single share price popped up (bullishly) 13.7% in that period. The Dow went totally bullish as price popped up 9.2% while dividend sank 3.1% in the past month. The Dow showed an overbought condition by 24% as aggregated single share price exceeded dividend from $1k invested in each stock by $92.

Since sector dogs are not the blue chip high quality equivalents of the Dow list, an additional gauge of upside potential was added to the simple high yield metric used to flush out bargains.

Wizards of Wall Street Weighed In

One year mean target price set by analysts multiplied by the number of shares in a $1k investment were used to compare ten stocks showing the highest upside price potential into 2014 out of 20 selected by yield. The number of analysts providing price estimates was noted after the name for each stock. Three to nine analysts was considered optimal for a valid mean target price estimate.

Actionable Conclusion Two: Analysts See 6.73% Net Gain from Top 20 Dogs Come 2014

Top twenty dogs for the industrial goods sector were graphed below to show relative strengths by dividend and price as of March 15, 2013 and those projected by analyst mean price target estimates to the same date in 2014.

A hypothetical $1000 investment in each equity was divided by the current share price to find the number of shares purchased. The shares number was then multiplied by projected annual per share dividend amounts to find the dividend return. Thereafter the analyst mean target price was used to gauge the stock upsides to 2014.

Historic prices and actual dividends paid from $1000 invested in the ten highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 2 created the data points for 2013. Projections based on estimated increases in dividend amounts from $1000 invested in the twenty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 2 created the 2014 data points green for price and blue for dividends.

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Yahoo projected a nearly 4.8% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by nearly 7.4% in the coming year. Note that the chart showed an overbought condition as aggregate single share price for ten industrial goods dogs exceeded projected dividends from $1k invested in those ten

The number of analysts contributing to the mean target price estimate for each stock was noted in the last column on the charts. Three to nine analysts was considered optimal for a valid projection estimate. Estimates provided by one analyst were not applied.

Actionable Conclusion Three: Analysts Forecast 2014 Industrial Goods DiviDog Stock Net Gains of 4.36% to 25.3%

Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:

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Caterpillar Inc. (NYSE:CAT) netted $252.99, based on dividends plus mean target price estimate from nineteen analysts;

Hillenbrand, Inc. (NYSE:HI) netted $164.10 based on dividends plus mean target price estimate from fifteen analysts;

Illinois Tool Works (NYSE:ITW) netted $119.03, based on dividends plus mean target estimates from thirteen analysts;

General Electric Company netted $91.35 based on a mean target price estimate from six analysts combined with projected annual dividend;

Eaton Corporation (NYSE:ETN) netted $80.37, based on dividends plus estimates from eighteen analysts;

General Dynamics (NYSE:GD) netted $77.27 based on estimates from fifteen analysts plus dividends;

Lockheed Martin Corp. netted $60.66, based on dividend plus mean target price estimates from thirteen analysts;

Honeywell International Inc. (NYSE:HON) netted $50.51 based on estimates from twenty two analysts plus dividends;

MDU Resources Group (NYSE:MDU) netted $49.48 based on dividends plus the mean of annual price estimates from eight analysts;

Snap-on Inc. (NYSE:SNA) netted $50.51 based on estimates from four analysts plus dividends.

The average net gain in dividend and price was 9.8% on $1k invested in each of these ten dogs.

The stocks listed above are suggested only as decent starting points for your sector dividend stock purchase research process. These are 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.

Disclosure: I am long DD, GE, INTC, JNJ, MCD, MSFT, PFE, T, VZ. 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.