This Morningstar/YChart (M/Y) report series was prompted by Seeking Alpha reader requests and began in February. 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.
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; utilities.
These dog theory picks were supplemented by one year mean target price estimates from broker analysts. Those results composed the Arnold m/y consumer cyclical sector selections for April shown below.
Dog Metrics Flagged Ten Choice Consumer Cyclical Dogs
Ten best consumer cyclical stocks showing the biggest dividend yields per the M/Y screen as of May 8 represented six industries. Tops was Charm Communications (CHRM), an advertising agency. Second dog, Educational Development Corporation (EDUC) was one of three publishing firms listed. The other two publishers placed seventh and tenth, Value Line (VALU), and Courier Corporation (CRRC). Third slot was claimed by Stonemor Partners (STON) one of three representatives from the personal services industry. The other two personal services firms, took the fourth, and fifth slots, Student Transportation (STB), and NutriSystem (NTRI). The lone rubber & plastics firm placed sixth, Deswell Industries (DSWL). Auto parts company, Douglas Dynamics (PLOW) was eighth. Finally leisure industries firm, Cedar Fair (FUN) was ninth to complete the top dogs list.
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 5/8/2013 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 (1): Consumer Cyclical Dogs Shrank From A Bear As Dow Dogs Chased A Bull
The April m/y consumer cyclical collection of dividend payers reversed a bullish price course set since December, 2012. Aggregate single share price of all ten consumer cyclical top dogs dropped 4.5%. In the past month m/y consumer cyclical dividend popped up 6%.
The Dow dogs, meanwhile, remained totally bullish last month as price popped up 7% and dividend sank 3.8%. The Dow extended an overbought condition as aggregated single share price exceeded dividend 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 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 (2): Analysts Forecast 13.75% 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 May 8, 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 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 more than a 10.8% lower dividend from $10K invested in this group while aggregate single share price was projected to increase 7.2% 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 (3): Analysts Expect 8 Consumer Cyclical DiviDogs to Net 8% to 81% in 2014
Eight probable profit generating trades for 2014 revealed by analysts reported by Yahoo Finance were:
- Charm Communications netted $811.93 based on estimates from three analysts plus dividends less broker fees;
- World Wrestling Entertainment (WWE) netted $288.45 based on dividends plus mean target price estimate from three analysts less broker fees;
- Valassis Communications (VCI) netted $252.47, based on dividends plus mean target price estimate from four analysts less broker fees;
- Douglas Dynamics netted $182.14, based on dividend plus mean target price estimates from four analysts less broker fees;
- Stonemor Partners netted $174.90 based on dividends plus mean target price estimate from eighteen analysts less broker fees;
- CTC Media (CTCM) netted $125.67 based on dividends plus the mean of annual price estimates from seventeen analysts less broker fees;
- NutriSystem netted $109.40, based on dividends plus mean target price estimate from four analysts less broker fees;
- Cedar Fair netted $80.84 based on estimates from five analysts plus dividends less broker fees.
The average net gain in dividend and price was 25.32% on $1k invested in each of these eight 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.