This Morningstar/YChart (M/Y) report series was prompted by Seeking Alpha reader requests and began in February. This series 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 request and Ycharts.com migration to an eleven sector list, this report provided three actionable conclusions about the highest yield (dividend / price) stocks from one of the Morningstar/YCharts (M/Y) sectors: basic materials, communication services, consumer cyclical, consumer defensive, energy, financial services, healthcare, industrials, real estate, technology and utilities.
These dog theory picks were supplemented with one year mean target price estimates from broker analysts. Those results composed the Arnold m/y energy sector selections for April shown below.
Dog Metrics Find Matchless Energy Dogs
Top ten energy stock aces showing the biggest dividend yields according to Y/M screens as of May 7 represented four business types in the oil and gas industry. Whiting USA Trust I (WHX), a driller whose leases expire in 2015, was again tops. ECA Marcellus Trust I (ECT), the lone integrated oil and gas firm on the list, was second. Whiting USA Trust II (WHZ), one of six exploration and production (E&P) firms, was third dog. Northern Tier Energy (NTI), the lone refiner and marketer, was listed fourth. The second driller on the list, SandRidge Mississippian Trust II (SDR), placed seventh. All the remaining slots (five, six, and eight through ten) were filled by E&P firms: Chesapeake Granite Wash Trust (CHKR), SandRidge Mississippian Trust I (SDT), VOC Energy Trust (VOC), SandRidge Permian Trust (PER), and LRR Energy (LRE).
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the top ten M/Y energy dogs by yield as of market close 5/7/2013 compared to those of the Dow. Historic projected annual dividend history from $1,000 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 (1): M/Y Energy Dogs Went Bearish as Dow Stayed Bullish
The m/y energy April collection of dividend payers cancelled their (bullish) upward price course set since November 2012. Aggregate single share price of the top ten succumbed to the bear attack and dropped 39% in the past month. At the same time, total dividends from $1k invested in each of those top ten dogs (bearishly) jumped 25% last month.
The Dow dogs, meanwhile, stayed on the bull path since March. Their aggregate single share price popped up 7% as dividends from $1k invested in each sank 3.8%. The Dow dogs extended an overbought condition as aggregated single share price exceeded dividends from $1k invested in each stock by $140.52, or 38%.
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 cull out bargains.
Wall Street Wizards 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 Two (2): Analysts Forecast 23.2% Net Gain from Top 20 M/Y Energy Dogs Come 2014
Top twenty dogs for the M/Y energy sector were graphed below to show relative strengths by dividend and price as of May 7, 2013, and those projected by analyst mean price target estimates to the same date in 2014.
A hypothetical $1,000 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 $1,000 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 $1,000 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 a 4.45% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by just 1.76% 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 were considered optimal for a valid projection estimate. Estimates provided by one analyst were not applied (n/a).
Actionable Conclusion Three (3): Analysts Project 2014 M/Y Energy DiviDogs to Net 21.35% to 47.1%
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
Penn West Petroleum (PWE) netted $471.04 based on a mean target price estimate from eight analysts combined with projected annual dividend less broker fees.
LRR Energy netted $423.80 based on dividends plus the mean of annual price estimates from six analysts less broker fees.
VOC Energy Trust netted $340.95 based on dividends plus mean target price estimates from six analysts less broker fees.
QR Energy (QRE) netted $317.93 based on dividend plus mean target price estimates from thirteen analysts less broker fees.
Northern Tier Energy netted $316.64 based on dividends plus mean target price estimates from six analysts less broker fees.
BreitBurn Energy Partners (BBEP) netted $292.57 based on a mean target price estimate from thirteen analysts combined with projected annual dividend less broker fees.
Eagle Rock Energy Partners (EROC) netted $278.04, based on dividends plus mean target price estimates from five analysts less broker fees.
SandRidge Permian Trust netted $226.94 based on estimates from three analysts plus dividends less broker fees.
SandRidge Mississippian Trust II netted $221.75 based on estimates from twenty one analysts plus dividends less broker fees.
Memorial Production Partners (MEMP) netted $213.54 based on target estimates from eight analysts plus dividends less broker fees.
The average net gain in dividend and price was 31% on $1k invested in each of these ten 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.