This Morningstar/YChart (M/Y) report series began last month. It was prompted by Seeking Alpha reader requests. It also 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.
So, responding to both the Seeking Alpha reader requests and Ycharts.com's migration to an eleven sector list, this report provided three actionable conclusions about boss dogs of the Morningstar/YCharts (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 augmented with one year mean target price estimates from broker analysts.
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.
Below, the Arnold M/Y Industrials Sector Selections for March were disclosed.
Dog Metrics Flagged Boss M/Y Industrial Stocks
Ten industrials sector stocks showing the biggest M/Y screened dividend yields March 22 represented five industries. Top industrials stock by dividend yield was one of six stocks representing the shipping industry: Diana Containerships (DCIX). Other shippers were in second through sixth positions: Box Ships (TEU); Globus Maritime (GLBS); Star Bulk Carriers (SBLK); Navios Maritime Partners (NMM); Capital Product Partners (CPLP). A Business services firm took seventh place, Collectors Universe (CLCT). Pitney Bowes (PBI) in business equipment took eighth place, while China Ceramics (CCCL), and Central North Airport Group (OMAB) took ninth and tenth to complete the top ten M/Y industrials dogs.
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the top ten M/Y industrials 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 dividend.
Actionable Conclusion: M/Y Industrials and Dow Dogs Chased Bulls
March's M/Y industrials collection of dividend payers continued a bullish price course set since December, 2012. Aggregate dividend from $10k invested in each of the top ten industrials dogs, dropped at a rate over 17.5% since the first of the year while total single share price popped up over 41% in that period. In the past month M/Y industrial dividend dropped .07% while price rose 21%.
The Dow, also went 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 Wizard Wisdom Weighed
One year mean target price set by brokerage 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 Too: Analysts Anticipate 13% Net Gain from Top 20 M/Y Industrials Dogs In 2014
Top twenty dogs for the M/Y industrials 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 price upsides and net gains including dividends less broker fees as of 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 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 over an 11% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by over 6.3% 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 Forecast 2014 M/Y Industrials DiviDogs to Net 14.4% to 64.6%
Six probable profit generating trades revealed by Yahoo Finance for 2014 were:
Diana Containerships netted $646.67 based on estimates from seven analysts plus dividends;
R.R. Donnelley & Sons (RRD) netted $249.20 based on dividends plus the mean of annual price estimates from three analysts;
Costamare (CMRE) netted $221.74, based on dividends plus a mean target price estimate from six analysts;
Pitney Bowes netted $210.87 based on dividends plus a mean target price estimate from four analysts;
Ship Finance International (SFL) netted $174.65 based on a mean target price estimate from eight analysts combined with projected annual dividend;
Compass Diversified Holdings Shares of Beneficial Interest (CODI) netted $144.75 based on target estimates from five analysts plus dividends.
The average net gain in dividend and price was slightly over 27% on $1k invested in each of these six boss dogs.
The above net gain estimates did 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 could 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 and consequences of "dividends" from any investment.
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.