10 Energy Dogs Gush 9.7% To 23.3% Upsides In June

by: Fredrik Arnold

Energy sector results tallied from Morningstar/YChart (M/Y) as of market closing prices June 28 compared with analyst mean target price results one year hence showed 10 top stocks exhibiting 9.74% to 23.25% price upsides.

The chart above used the one-year mean target price set by brokerage analysts matched against June 28 closing price to compare 10 sector 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 were considered optimal for a valid mean target price estimate.

This report series started applying dog dividend methodology in February prompted by Seeking Alpha reader requests. It complemented reports of possible dividend yield based buy opportunities from eight major market sectors as listed by Yahoo Finance posted since the fall of 2011.

So, responding to both the Seeking Alpha reader requests and Ycharts.com migration to an 11-sector list, this report series provided three actionable conclusions about the highest yield (dividend/price) stocks from the Morningstar/YCharts (M/Y) sectors: basic materials; communication services; consumer cyclical; consumer defensive; energy; financial services; healthcare; industrials; real estate; technology; utilities. Below the author compared Dow dividend dog theory picks with one-year mean target price estimates reported from broker analysts to reveal the following Arnold M/Y energy selections for May/June:

Dog Metrics Refined 10 M/Y Energy Stocks

Top 10 energy stock aces showing the biggest dividend yields according to Y/M screens as of June 28 represented four business types in the oil and gas industry. Northern Tier Energy (NYSE:NTI), one of two refiner and marketers, was tops. The other refiner and marketer, Alon USA Partners (NYSE:ALDW), was seventh. Whiting USA Trust II (WHZ), one of six exploration and production (E&P) firms was second dog. ECA Marcellus Trust I (NYSE:ECT) the lone integrated O&G firm on the list was listed third. Chesapeake Granite Wash Trust (NYSE:CHKR), the lone midstream industry firm, placed fourth. All the remaining slots (five, six, and eight through 10) were filled by E&P firms: SandRidge Mississippian Trust II (NYSE:SDR); SandRidge Mississippian Trust I (NYSE:SDT); SandRidge Permian Trust (NYSE:PER); VOC Energy Trust (NYSE:VOC); LRR Energy (NYSE:LRE) to complete the May/June energy dog list.

Dividend Vs. Price Results Compared to Dow

The graph below of the relative strengths of the top 10 M/Y energy dogs by yield as of market close June 28, 2013, compared to those of the Dow. Historic projected annual dividend history from $1,000 invested in each of the 10 highest-yielding stocks and the total single share prices of those 10 stocks created the data points shown in green for price and blue for dividend.

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Actionable Conclusion 1): M/Y Energy Dogs and Dow Both Bullish

M/Y energy May/June collection of dividend payers resumed an upward price course. Aggregate single share price of the top 10 popped up 6% in the past month. At the same time, total dividend from $1K invested in each of those top 10 dogs dropped 1.2% last month.

For the Dow dogs, meanwhile, projected annual dividend from $1k invested in each of the top 10 dropped over 2.2% since April, while aggregate single share price popped up over 13.6%. The Dow dogs bull run increased their overbought condition as aggregate single share price of the 10 exceeded projected annual dividend from $1k invested in each of the 10 by over $198, or 53%. 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 identify bargains.

Actionable Conclusion 2): Wall Street Wizard Wisdom Weighed to Reveal 20% Net Gain From Top 20 Energy Dogs By 2014

Top 20 dogs for the M/Y energy sector were graphed below to show relative strengths by dividend and price as of June 28, 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 20 stocks divided by two created data points for 2013. Projections based on estimated increases in dividend amounts from $1,000 invested in the 20 highest yielding stocks and aggregate one-year analyst target share prices from Yahoo Finance divided by two created the 2014 data points green for price and blue for dividends.

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Yahoo projected a 5.9% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 6% 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).

A beta (risk) ranking for each analyst rated stock was provided in the far right column on the above chart. A beta of 1 meant the stock's price would move with the market. Less than 1 showed lower than market movement. Higher than 1 showed greater than market movement.

Actionable Conclusion 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:

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  • Northern Tier Energy netted $397.57 based on dividends plus mean target price estimate from eight analysts less broker fees
  • Eagle Rock Energy Partners (NASDAQ:EROC) netted $324.35, based on dividends plus mean target price estimate from five analysts less broker fees
  • LRR Energy netted $299.97 based on dividends plus the mean of annual price estimates from six analysts less broker fees
  • VOC Energy Trust netted $290.10 based on dividends plus mean target price estimate from two analysts less broker fees
  • BreitBurn Energy Partners (BBEP) netted $289.59 based on a mean target price estimate from 13 analysts combined with projected annual dividend less broker fees
  • Alon USA Partners netted $276.22 based on a mean target price estimate from three analysts combined with projected annual dividend less broker fees
  • SandRidge Mississippian Trust II netted $260.22 based on estimates from three analysts plus dividends less broker fees
  • QR Energy (NYSE:QRE) netted $246.63, based on dividend plus mean target price estimates from 15 analysts less broker fees
  • SandRidge Permian Trust netted $215.22 based on estimates from three analysts plus dividends less broker fees
  • Memorial Production Partners (NASDAQ:MEMP) netted $184.59 based on target estimates from eight analysts plus dividends less broker fees

The average net gain in dividend and price was 27.84% on $1K invested in each of these 10 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 recapture 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 PGH, DD, GE, INTC, JNJ, MCD, 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.