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 basic materials sector selections for April shown below.
Dog Metrics Ordered Ten Top Basic Materials Dogs
The ten best m/y basic materials stocks showing the biggest dividend yields per the m/y screen as of May 8 represented five industries. The top basic materials stock by yield was Rhino Resource Partners (RNO), one of four coal miners making the list. The other three coal companies were Natural Resources Partners (NRP), Yanzhou Coal Mining Company (YZC), and Alliance Holdings GP (ARLP) in fifth, eighth, and tenth places. Great Northern Iron (GNI) an industrial metals and minerals trust expiring in 2015, showed the second highest yield. Hi-Crush Partners (HCLP), another metals and minerals firm placed fourth. The lone chemicals firm, PetroLogistics (PDH) placed third. Two agricultural input firms, CVR Partners (UAN), and Terra Nitrogen Company (TNH), placed sixth and ninth. The final slot in the top ten by yield was claimed by China Ceramics (CCCL), the lone building materials firm in seventh place to complete the top ten m/y basic materials dogs.
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the top ten basic materials 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 One (1): M/Y Basic Materials Dogs Cowed By Bear as Dow Stayed Bullish
M/Y Basic materials collection of dividend payers in April retreated as price dropped 11.85% in the month past. Aggregate dividend from $10k invested in each of the top ten healthcare stocks reacted and popped up 19.2%.
The Dow dogs, meanwhile, continued on the bull path last month as the aggregate single share price of the ten popped up 7% while total annual dividend form $1k invested in each dog 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 sort out bargains.
Wizards of Wall Street Wisdom Weighed
One year mean target price set by analysts multiplied by the number of shares in a $1k investment were used to compare nine 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 15.6% Net Gain from Top 20 M/Y Basic Materials Dogs Come 2014
Top twenty dogs for the M/Y basic materials 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 a 5.9% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 5.2% 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 Predict 9 M/Y Basic Materials DiviDogs to Net 5% to 56.2% in 2014
Nine probable profit generating trades revealed by Yahoo Finance for 2014 were:
ArcelorMittal (MT) netted $492.16 based on dividends plus mean target price estimate from six analysts less broker fees;
PetroLogistics netted $391.95 based on a mean target price estimate from five analysts combined with projected annual dividend less broker fees;
Vale S.A. (VALE) netted $318.10, based on dividend plus mean target price estimates from eighteen analysts less broker fees;
Natural Resource Partners netted $250.29 based on a mean target price estimate from four analysts combined with projected annual dividend less broker fees;
Tronox Incorporated (TROX) netted $214.00 based on estimates from two analysts plus dividends less broker fees;
Rentech Nitrogen Partners (RNF) netted $195.63 based on dividends plus the mean of annual price estimates from seven analysts less broker fees;
Hi-Crush Partners netted $182.40 based on dividends plus mean target price estimate from seven analysts less broker fees;
Orchids Paper Products Co (TIS) netted $153.91 based on target estimates from two analysts plus dividends less broker fees.
Alliance Resource Partners netted $137.85, based on dividends plus mean target price estimate from six analysts less broker fees;
The average net gain in dividend and price was 25.96% 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 foreign and domestic 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.