Seeking Alpha
Dividend investing, growth, momentum
Profile| Send Message| ()  

Results from Yahoo Finance for industrial goods (indigo) sector stocks tallied as of market closing prices August 2 compared with analyst mean target gain results one year hence featured LSI Industries Inc. (LYTS), the Ohio firm from the industrial electrical equipment industry, that recently announced an optical LED lighting system that precisely focuses light, sparking a 35.97% price upside. Nine other indigo dogs displayed upsides ranging from 4.94% to 17.56%

The chart above used one year mean target price set by brokerage analysts matched against August 2 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 the fall of 2011 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 author compared Dow dividend dog theory picks exhibiting the highest yield (dividend / price) from Yahoo sectors with one year mean target price estimates reported from broker analysts.

Note the Arnold IndiGo selections for July/August as follows:

Dog Metrics Screened Ten Top Industrial Goods Stocks

Ten industrial goods sector stocks showing the biggest dividend yields according to Yahoo as of August 2 represented six industries. Top industrial goods sector stock, Veolia Environement (VE), was one of two waste management firms in the top ten. The other was Waste Management (WM) in sixth place. CRH plc (CRH) in second place is a Cement firm. The lone small tools industry firm, L.S. Starrett Company (SCX) placed third. Aerospace & defense-major firm Lockheed Martin Corporation (LMT) was fourth. Diversified machinery was represented by three firms in the top ten: Ampco-Pittsburgh Corp (AP) in fifth place, Hillenbrand, Inc. (HI) in eighth place, and General Electric (GE) in tenth. The Swiss industrial equipment and components firm, ABB Ltd. (ABB) placed seventh. The remaining company in the top ten was MDC Holdings Inc. (MDC), a residential construction firm in ninth place.

Dividend vs. Price Results Compared to Dow Dogs

Below is a graph of the relative strengths of the top ten industrial goods dogs by yield as of market close 8/2/2013 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.

(click to enlarge)

Actionable Conclusion (1): Industrial Goods Dogs Mixed as Dow Dogs Cower

The July/August industrial goods collection of dividend payers dropped in both aggregate single share price and dividend from $10k invested as $k in each of the ten. Price dropped 15.8% as of August 2 while dividend sunk at a rate of 5%. This pack of industrial goods dogs is no longer overbought as they showed in June.

For the Dow dogs, meanwhile, annual dividend 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 dividend 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 Wrestled An 8.91% Net Gain from Top 20 Industrial Goods Dogs Come 2014

Top twenty dogs for the industrial goods sector were graphed below to show relative strengths by dividend and price as of August 2, 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 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 $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.

(click to enlarge)

Yahoo projected a 5% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by over 4.6% in the coming year. Note that the chart showed an overbought condition as aggregate single share price for ten industrial goods dogs exceeded projected dividends from $1k invested in each of those ten

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 was considered optimal for a valid projection estimate. Estimates provided by one analyst were not applied (n/a).

A beta (risk) ranking for each 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 price movement opposite of market direction.

Actionable Conclusion (3): Analysts Forecast 2014 Industrial Goods DiviDog Net Gains of 6% to 37.2%

Ten probable profit generating trades were revealed by Thompson/First Call in Yahoo Finance for 2014:

(click to enlarge)

LSI Industries Inc. netted $372.81 based on dividends plus a mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 60% more than the market as a whole.

MDC Holdings Inc. netted $186.79 based on dividends plus the mean of annual price estimates from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 90% more than the market as a whole.

Hillenbrand, Inc. netted $184.69 based on dividends plus mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 22% more than the market as a whole.

Republic Services, Inc. (RSG) netted $139.24 based on estimates from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 43% less than the market as a whole.

Caterpillar, Inc. (CAT) netted $108.59, based on dividends plus estimates from twenty analysts less broker fees. The Beta number showed this estimate subject to volatility 88% more than the market as a whole.

ABB Ltd. netted $106.12 based on estimates from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 52% more than the market as a whole.

Eaton Corporation (ETN) netted $102.16 based on estimates from twenty-two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 74% more than the market as a whole.

General Dynamics (GD) netted $90.64 based on estimates from fourteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 14% more than the market as a whole.

US Ecology (ECOL) netted $78.91, based on dividends plus mean target estimates from two analysts less broker fees. The Beta number showed this estimate subject to volatility 42% more than the market as a whole.

General Electric Company netted $60.16 based on a mean target price estimate from thirteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 28% more than the market as a whole.

The average net gain in dividend and price was 14.3% on $1k invested in each of these ten dogs. This gain estimate was subject to average volatility 43% more 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 are suggested only as decent starting points for your sector dividend stock purchase research process. These are 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.

Source: LSI 36% July/August Upside Again Paced Industrial Goods Dogs