4 Poor Communication Services Dogs Beg 7% To 27% Gains In April

Includes: FTR, VIP, VIV, WIN
by: Fredrik Arnold

This Morningstar/YChart (M/Y) report series was encouraged 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 Seeking Alpha reader requests 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.

Dog theory picks were supplemented by one year mean target price estimates from broker analysts. Those combined results composed the Arnold m/y consumer cyclical sector selections for April shown below.

Dog Metrics Found Ten Top Communication Services Dogs

The ten best communication services stocks showing the biggest dividend yields per the m/y screen as of May 8 represented just one industry, telecom services. In descending order they were: (1) Windstream Corporation (NASDAQ:WIN); (2) NTELOS Holdings Corporation (NASDAQ:NTLS); (3) Oi SA (NYSE:OIBR); (4) VimpelCom Ltd. (NYSE:VIP); (5) Frontier Communications Corporation (NYSE:FTR); (6) Portugal Telecom, SGPS S.A. (NYSE:PT); (7) France Telecom (FTE); (8) Consolidated Communications Holdings Inc. (NASDAQ:CNSL); (9) Hong Kong Television Network Limited (NASDAQ:HKTV); (10) SK Telecom Co. Ltd. (NYSE:SKM).

Dividend vs. Price Results Compared to Dow Dogs

Below is a graph of the relative strengths of the top ten m/y communication services 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.

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Actionable Conclusion (1): Communication Services Dogs Mixed While Dow Dogs Stay Bullish

The April m/y communication services collection of dividend payers continued a bearish price course set over a year ago. Aggregate single share price of all ten m/y communication services top dogs dropped 10.5%. The mixed signal was sent when total dividend from $1k invested in each stock dropped 12.4% since March.

The Dow dogs, meanwhile, remained totally bullish last month as price popped up 7% while dividend sank 3.8%. As price inclined and dividend dropped, the Dow dogs extended their overbought condition in which 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 Wisdom Weighed

One year mean target price set by analysts multiplied by the number of shares in a $1k investment were used to compare four 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 9.3% Net Gain from Top 20 Communication Services Dogs Come 2014

Top twenty dogs for the m/y communication services 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.

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Yahoo projected more than a 3.7% lower dividend from $10K invested in this group while aggregate single share price was projected to increase 0.62% 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 4 Communication Services DiviDogs to Net 7% to 27% in 2014

Four probable profit generating trades for 2014 revealed by analysts reported by Yahoo Finance were:

  • VimpelCom Ltd. netted $273.49 based on estimates from nineteen analysts plus dividends less broker fees;
  • Windstream Corporation netted $227.65 based on dividends plus mean target price estimate from fourteen analysts less broker fees;
  • Frontier Communications Corporation netted $197.70, based on dividends plus mean target price estimates from four analysts less broker fees; and
  • Telefonica Brasil, S.A. (NYSE:VIV) netted $72.52, based on dividend plus mean target price estimates from seven analysts less broker fees.

The average net gain in dividend and price was 19.28% on $1k invested in each of these four dogs.

The above net gain estimates did not factor-in any tax problems, foreign or domestic, 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.

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.

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.