Morningstar/YChart (M/Y) basic materials sector results tallied as of market closing prices June 28 compared with analyst mean target gain results one year hence featured Vale SA (NYSE:VALE), a Brazilian industrial metals and minerals firm, showing a 85.81% price upside.
The chart above used the one year mean target price set by brokerage analysts matched against June 28 closing price to compare ten 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 eleven 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 basic materials selections for May/June:
Dog Metrics Chose Ten M/Y Basic Materials Dogs
The ten best M/Y basic materials stocks showing the biggest dividend yields per the M/Y screen as of June 28, 2013 represented seven industries. The top basic materials stock by yield was the lone chemicals firm, PetroLogistics (NYSE:PDH). Great Northern Iron (NYSE:GNI), an industrial metals and minerals trust expiring in 2015, showed the second highest yield. Hi-Crush Partners (NYSE:HCLP), another metals and minerals firm, placed tenth. Rhino Resource Partners (NYSE:RNO), one of two coal miners making the list, placed third. The other coal company listed was Natural Resource Partners (NYSE:NRP), in fifth place. Two agricultural input firms, CVR Partners (NYSE:UAN), and Terra Nitrogen Company (NYSE:TNH), placed fourth and seventh. The sixth slot in the top ten by yield was claimed by Ferrellgas Partners (NYSE:FGP), listed by Y Charts as a specialty chemicals firm. The lone building materials firm, James Hardie Industries (NYSE:JHX) took eighth place. Finally, Norbord, Inc. (OTCPK:NBRXF) the lumber and wood firm, placed ninth 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 6/28/2013 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): M/Y Basic Materials Dogs Mixed Up as Dow Stayed Bullish
M/Y Basic materials collection of dividend payers showed mixed results for May/June. Price was up a slight 0.865% for the past period. Aggregate dividend from $10k invested in each of the top ten stocks, however, soared up 21%.
For the Dow dogs, meanwhile, projected annual dividend from $1k invested in each of the top ten 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 ten exceeded projected annual dividend from $1k invested in each of the ten 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): Wise Wall Street Wizard Words Reveal 23% Net Gain from Top 20 Basic Materials Dogs
The top twenty dogs for the M/Y basic materials 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 $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 an 8% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 7.4% 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).
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 Predicted Ten M/Y Basic Materials DiviDogs Will Net 9.9% to 80.4% in 2014
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
Iamgold Corp (NYSE:IAG) netted $804.48 based on estimates from seventeen analysts plus dividends less broker fees. The beta number showed this estimate subject to volatility 76% less than the market as a whole.
Vale S.A. (VALE) netted $564.79, based on dividend plus mean target price estimates from nineteen analysts less broker fees. The beta number showed this estimate subject to volatility 57% greater than the market as a whole.
Rentech Nitrogen Partners (NYSE:RNF) netted $430.37 based on dividends plus the mean of annual price estimates from six analysts less broker fees. The beta number showed this estimate subject to volatility 265% greater than the market as a whole.
ArcelorMittal (NYSE:MT) netted $406.79 based on dividends plus mean target price estimate from six analysts less broker fees. The beta number showed this estimate subject to volatility 144% greater than the market as a whole.
James Hardie Industries (JHX) netted $352.91 based on dividends plus mean target price estimate from two analysts less broker fees. The beta number showed this estimate subject to volatility 65% greater than the market as a whole.
Natural Resource Partners (NRP) netted $334.89 based on a mean target price estimate from three analysts combined with projected annual dividend less broker fees. The beta number showed this estimate subject to volatility 18% greater than the market as a whole.
CVR Partners (UAN) netted $181.82 based on target estimates from three analysts plus dividends less broker fees. The beta number showed this estimate subject to volatility 16% less than the market as a whole.
PetroLogistics (PDH) netted $170.70 based on a mean target price estimate from five analysts combined with projected annual dividend less broker fees. The beta number showed this estimate subject to volatility 58% less than the market as a whole.
Alliance Resource Partners (NASDAQ:ARLP) netted $162.50, based on dividends plus mean target price estimate from six analysts less broker fees. The beta number showed this estimate subject to volatility 2% less than the market as a whole.
SunCoke Energy Partners (NYSE:SXCP) netted $98.91 based on target estimates from six analysts plus dividends less broker fees. The beta number showed this estimate subject to volatility 80% less than the market as a whole.
The average net gain in dividend and price was 20.2% on $1,000 invested in each of these ten basic materials dogs. This gain estimate was subject to average volatility 23% greater than the market as a whole.
Net gain estimates above did not factor in any foreign or domestic tax problems resulting from distributions. 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.
Disclosure: I am long 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.