Best Dogs Chase 8.3% To 45% Gains: March M/Y Consumer Cyclical Sector

by: Fredrik Arnold

This Morningstar/YChart (M/Y) report series was prompted by Seeking Alpha reader requests and began last month. It complemented my reports of possible dividend yield based buy opportunities from eight major market sectors as listed by Yahoo Finance which I've posted since the fall of 2011.

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."

So, in response to both Seeking Alpha reader requests and migration to an eleven sector list, this report series offered three actionable conclusions in unique articles devoted top high yield members of the M/Y sectors: basic materials; communication services; consumer cyclical; consumer defensive; energy; financial services; healthcare; industrials; real estate; technology; utilities. These sectors were all subjected to screening based on a once per year trading system triggered by yield supplemented with one year mean target price estimates from broker analysts.

Below, the Arnold M/Y Consumer Cyclical Sector Selections for March were disclosed.

Dog Metrics Revealed Top M/Y Consumer Cyclical Stocks

Top ten consumer cyclical stocks showing the biggest dividend yields per the M/Y screen as of March 22 represented eight industries. At the top was StoneMor Partners (NASDAQ:STON) one of three representatives from the personal services industry. The other two personal services firms, took third and fourth, Student Transportation (NASDAQ:STB), and NutriSystem (NASDAQ:NTRI). Second dog, Educational Development Corporation (NASDAQ:EDUC) was one of three publishing firms listed. The other two publishers placed seventh and eighth, Value Line (NASDAQ:VALU), and Courier Corporation (NASDAQ:CRRC). One rubber & plastics firm placed fifth, Deswell Industries (NASDAQ:DSWL). A leisure industries firm, Cedar Fair (NYSE:FUN) was sixth. Auto parts company, Douglas Dynamics (NYSE:PLOW) was ninth, and a marketing services firm, National CineMedia (NASDAQ:NCMI) was tenth.

Dividend vs. Price Results Compared to Dow Dogs

Below is a graph of the relative strengths of the top ten M/Y consumer cyclical dogs by yield as of market close 3/22/2013 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: M/Y Consumer Cyclical Dogs and Dow Chased A Bull

March's M/Y consumer cyclical 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 over 14.8% since the first of the year while total single share price popped up over 84.5% in that period. In the past month M/Y consumer cyclical dividend dropped 6.6% while price rose 49.9%.

The Dow, meanwhile was totally bullish as price popped up 9.2% while dividend sank 3.1% last month. The Dow shows 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 sniff out bargains.

Wall Street Wizards Weighed In

One year mean target price set by analysts multiplied by the number of shares in a $1k investment were used to compare eight 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 12% Net Gain from Top 20 M/Y Consumer Cyclical Dogs Come 2014

Top twenty dogs for the M/Y consumer cyclical sector were graphed below to show relative strengths by dividend and price as of March 22, 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 over a 6.2% lower dividend from $10K invested in this group while aggregate single share price was projected to increase 12.6% 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 M/Y Consumer Cyclical DiviDogs to Net 5% to 56.2%

Eight probable profit generating trades for 2014 revealed by analysts documented by Yahoo Finance were:

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NutriSystem (NTRI) netted $451.81, based on dividends plus mean target price estimate from four analysts;

World Wrestling Entertainment (NYSE:WWE) netted $378.55 based on dividends plus mean target price estimate from three analysts;

National CineMedia (NCMI) netted $190.77 based on a mean target price estimate from ten analysts combined with projected annual dividend;

Douglas Dynamics (PLOW) netted $186.45, based on dividend plus mean target price estimates from four analysts;

Cedar Fair (FUN) netted $144.78 based on estimates from three analysts plus dividends;

CTC Media (NASDAQ:CTCM) netted $136.28 based on dividends plus the mean of annual price estimates from seventeen analysts;

Six Flags Entertainment (NYSE:SIX) netted $84.98, based on dividends plus mean target price estimate from three analysts;

Regal Entertainment Group (NYSE:RGC) netted $83.68 based on dividends plus mean target price estimate from eighteen analysts;

The average net gain in dividend and price was 20.69% on $1k invested in each of these ten dogs.

The stocks listed above were suggested only as decent starting points for your M/Y sector dividend stock purchase 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.

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.