Results from the basic materials sector stocks calculated as of August 2, 2013, projecting gain results one year hence showed Linn Energy (LINE), the independent oil and gas firm specializing in the acquisition and development of properties, led the sector with a 25.38% price upside.
This report series started in the fall of 2011 applying dog dividend methodology to reveal possible buy opportunities in each of eight major market sectors listed by Yahoo Finance: basic materials (BasMats), consumer goods (ConGo), financials (Fins), healthcare (Heal), industrial goods (IndiGo), services (Svcs), technology (Tec) and utilities (Utes).
Below, the Arnold Basic Materials Sector top dog selections for July/Aug were reported.
Dog Metrics Sorted Basic Materials Sector Stocks by Yield
Eight of the top ten basic materials stocks showing the biggest dividend yields per the Yahoo screen as of August 2 represented oil and/or gas industries: Hugoton Royalty Trust (NYSE:HGT), classified as a driller in this sector was tops; Linn Energy, LLC an independent, was third; BreitBurn Energy Partners LP (BBEP) a driller, was fifth; Nustar Energy LP (NYSE:NS), a pipeline firm, was sixth; MV Oil Trust Unit (NYSE:MVO), another driller, was seventh; BP Prudhoe Bay Royalty Trust (NYSE:BPT), listed as a refiner and marketer by Yahoo, was eighth; Vanguard Natural Resources (NASDAQ:VNR), also a driller, was ninth; Ferrellgas Partners LP (FGP), a refiner and marketer, was tenth.
Just two of the top ten basic materials firms did not mention oil or gas in their industry description: Great Northern Iron Ore Properties (NYSE:GNI), a steel and iron concern whose lease also expires in 2015, took second place on the list; Natural Resource Partners LP (NYSE:NRP), an industrial metals and minerals (COAL) firm, was fourth.
Dividend vs. Price Results Compared to Dow Dogs
The graph below of the relative strengths of the top ten basic materials dogs by yield was plotted as of market close 8/2/2013 compared to those of the Dow of 6/14. Historic projected annual dividend history from $1,000 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): Basic Materials Top Ten Dogs Got Bullish, Dow Got Down
Dividends from $1k invested in each dropped and aggregate single share price increased since June. Dividends from $10k invested as $1K in each of the top ten stocks dropped at a rate of 26% while total single share price popped up 9% in that period. The market signal was fully bully.
For the Dow dogs, meanwhile, annual dividends from $1k invested in each of the top ten increased just 0.03% since June, while aggregate single share price dropped over 8%, showing the first bear tack of the year. Dow dogs decreased their overbought condition in which aggregate single share price of the ten exceeded projected annual dividends from $1k invested in each of the ten by over $198 or 53% in June was shrunk to $152.51 or 41% in July.
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 sniff out bargains.
Actionable Conclusion (2): Wall Street Wizard Wisdom Weighed Over 16% Net Gain from Top 20 Basic Materials Dogs In 2014
Top twenty dogs for the 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 $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 upsides to 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 twenty stocks divided by 2 created the data points for 2013. Projections based on estimated increases in dividend amounts from $1,000 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% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 4% in the coming year.
The number of analysts contributing to the mean target price estimate for each stock was noted in the next to 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.
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. A negative beta number indicated the degree of a stock's movement opposite of market direction.
Actionable Conclusion Three (3): Analysts Forecast 10 Basic Materials Sector Dogs to Net 14.8% to 34.8% By August 2014
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
Linn Energy, LLC netted $348.44, based on dividends plus mean target price estimates from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.
Natural Resource Partners netted $285.21, based on dividends plus mean target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 17% greater than the market as a whole.
BreitBurn Energy Partners LP netted $277.27 based on dividends plus mean target price estimate from fourteen analysts less broker fees. The Beta number showed this estimate subject to volatility 36% less than the market as a whole.
Pengrowth Energy Corporation (NYSE:PGH) netted $240.95, based on dividends plus a mean target price estimate by nine analysts less broker fees. The Beta number showed this estimate subject to volatility 55% greater than the market as a whole.
Vanguard Natural Resources netted $231.76 based on dividends plus the mean of annual price estimates from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 10% greater than the market as a whole.
EV Energy Partners LP (NASDAQ:EVEP) netted $225.54 based on estimates from ten analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 43% less than the market as a whole.
Legacy Reserves LP (NASDAQ:LGCY) netted $174.85 based on estimates from eleven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 17% greater than the market as a whole.
Calumet Specialty (NASDAQ:CLMT) netted $171.01 based on a mean target price estimate from six analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 9% greater than the market as a whole.
Nustar Energy LP netted $154.74 based on a mean target price estimate from nine analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 8% greater than the market as a whole.
Energy Transfer Partners (NYSE:ETP) netted $148.68 based on dividends plus mean target price estimate from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 9% greater than the market as a whole.
The average net gain in dividend and price was over 22.5% on $1k invested in each of these ten dogs. This gain estimate was subject to average volatility 3% greater than the market as a whole.
The stocks listed above were suggested only as decent starting points for your sector dog dividend stock purchase research process. These were not recommendations.
These gains as reported do not factor in any tax problems resulting from distributions. Consult your tax advisor regarding the source of "dividends" from any investment.
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, MCD, MSFT, PFE, PGH, 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.