Top Seven March Utilities Dogs To Generate 5% To 75.6% Net Gains

by: Fredrik Arnold

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

An online investor primer, Investor Glossary, recently offered this brief 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 picks from Yahoo sectors were supplemented with one year mean target price estimates from broker analysts for this article. Below, the Arnold Utilities Sector Selections for March were disclosed.

Dog Metrics Revealed Top Utilities Stocks

Ten top utilities sector stocks that showed the biggest dividend yields March 15 by Yahoo Finance represented four industries: electric; gas; diversified; foreign. Top two dogs, Suburban Propane Partners (NYSE:SPH) and Amerigas Partners (NYSE:APU) were gas firms. The other gas firm, Inergy, L.P. (NRGY) took position six. In third place, Atlantic Power Corporation (NYSE:AT) was tops of three electric firms listed. The other electrics were in seventh and ninth places, FirstEnergy Corporation (NYSE:FE), and PPL Corporation (NYSE:PPL). In fourth place, Exelon Corporation (NYSE:EXC) showed the highest dividend yield out of three diversified utilities. The other diversified utilities were in eighth and tenth places, Unitil Corporation (NYSE:UTL), and Ameren Corporation (NYSE:AEE). One foreign utility, CPFL Energia (NYSE:CPL) was listed fifth.

Dividend vs. Price Results Compared to Dow Dogs

Below is a graph of the relative strengths of the top ten utilities 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.

Actionable Conclusion: Utilities Dogs and Dow Chased Bulls

March's utilities collection of dividend payers continued a bullish price course set since December, 2012. Aggregate dividend from $10k invested in each of the top ten utilities stocks, dropped at a rate of nearly 32% since the first of the year while total single share price popped up over 38% in that period. In the past month utilities dividend dropped 10.8% while price rose .07%.

The Dow went totally bullish as price popped up 9.2% as 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 in vested 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 seven 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 Too: Analysts Forecast 9.72% Net Gain from Top 20 Utilities Dogs Come 2014

Top twenty dogs for the utilities 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.

Yahoo projected nearly a 5.7% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by over 2.5% in the coming year. 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 (n/a).

Actionable Conclusion Three: Analysts Expect 2014 Utilities DiviDogs to Net 5% to 74.6%

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

Atlantic Power Corporation netted $746.36, based on dividends plus mean target price estimate from seven analysts;

Inergy, L.P. netted $181.87 based on dividends plus mean target price estimate from eight analysts;

National Grid plc (NYSE:NGG) netted $93.41 based on a mean target price estimate from two analysts combined with projected annual dividend;

Unitil Corp. netted $76.75, based on dividend plus mean target price estimates from three analysts;

Brookfield Infrastructure Partners (NYSE:BIP) netted $68.98 based on estimates from eight analysts plus dividends;

Alliant Energy Corporation (NYSE:LNT) netted $52.59 based on dividends plus the mean of annual price estimates from seven analysts;

PPL Corporation netted $50.84 based on target estimates from fourteen analysts plus dividends.

The average net gain in dividend and price was 18.15% on $1k invested in each of these ten dogs.

The above net gain estimates do not factor-in any tax problems resulting from distributions (not dividends and K-1s) from MLPs and any possible re-capture tax problems/rates that may suck projected gains out of some of these estimates at the regular tax bracket rate and not capital gain rates. Consult your tax advisor regarding the source of "dividends" from any investment.

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 AT, 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.