Led by Alon USA Partners (ALDW) with a projected 58.55% price upside, energy sector results tallied from Morningstar/YChart (M/Y) as of market closing prices August 21 compared with analyst mean target price results one year hence showed 9 more energy stocks exhibiting 14.9% to 46.28% price upsides.
The chart above used the one year mean target price set by brokerage analysts matched against August 21 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 energy selections for July/August:
Dog Metrics Refined Ten M/Y Energy Stocks
Ten energy stock aces showing the biggest dividend yields according to Y/M screens as of August 21 represented four business types in the oil and gas industry. Whiting USA Trust II (WHZ), one of four exploration and production (e&p) firms was, was tops. Spaces four, seven and eight were filled by the remaining e&p firms: SandRidge Mississippian Trust I (SDT); SandRidge Permian Trust (PER); Hugoton Royalty Trust (HGT). ECA Marcellus Trust I (ECT) the lone integrated o&g firm on the list placed second. Two midstream industry firms placed third and ninth: Chesapeake Granite Wash Trust (CHKR); Eagle Rock Energy (EROC). Three refiner and marketing firms filled the remaining fifth, sixth and tenth slots: CVR Refining (CVRR); Alon USA Partners (ALDW); Northern Tier Energy (NTI) to complete the July/August energy top ten dog list.
Dividend vs. Price Results Compared to Dow
The graph below of the relative strengths of the top ten M/Y energy dogs by yield as of market close 8/21/2013 compared to those of the Dow. Historic projected annual dividend history from $10,000 invested as $1k each in the ten highest yielding stocks along with the total single share prices of those ten stocks created the data points shown in green for price and blue for dividend.
Actionable Conclusion (1): M/Y Energy Dogs and Dow Both Fall Back
M/Y energy sector dividend payers showed bearish results for July/August. Price was down 10% since June. Aggregate dividend from $10k invested in each of the top ten stocks was up 7.9%.
For the Dow dogs, meanwhile, annual dividend from $1k invested in each of the top ten increased 3.6% since July, while aggregate single share price dropped 2.6%, continuing the bear track since June. 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, then shrunk to $153 or 41% in July, and kept compressing to $125 or 33% in August.
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 hunt down bargains.
Actionable Conclusion (2): Wall Street Wizard Wisdom Willed A 29% Net Gain from Top 20 M/Y Energy Dogs
Top twenty dogs for the M/Y energy sector were graphed below to show relative strengths by dividend and price as of August 21, 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 price upsides and net gains including dividends less broker fees as of 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 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 12% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 19% 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 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. A negative beta number indicated the degree of stock price movement opposed to market direction.
Actionable Conclusion (3): Analysts Cast 2014 M/Y Energy DiviDogs to Net 28% to 75%
Ten probable profit generating trades were revealed by Thompson/First Call and reported by Yahoo Finance for 2014:
Alon USA Partners (ALDW) netted $747.99 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 244% opposite the market as a whole.
Eagle Rock Energy Partners (EROC) netted $582.54, based on dividends plus mean target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 26% less than the market as a whole.
Linn Energy (LINE) netted $475.48 based on dividends plus mean target price estimate from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.
Northern Tier Energy (NTI) netted $463.04 based on dividends plus mean target price estimate from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 24% opposite the market as a whole.
Linn Co LLC (LNCO) netted $433.83 based on dividends plus the mean of annual price estimates from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 76% opposite the market as a whole.
BreitBurn Energy Partners (BBEP) netted $334.25 based on a mean target price estimate from fourteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 36% less than the market as a whole.
CVR Refining (CVRR) netted $330.55 based on estimates from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.
QR Energy (QRE) netted $303.88, based on dividend plus mean target price estimates from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 25% less than the market as a whole.
SandRidge Permian Trust (PER) netted $291.98 based on estimates from two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 44% greater than the market as a whole.
New Source Energy (NSLP) netted $281.30 based on target estimates from five analysts plus dividends less broker fees. A Beta number was not available for NSLP.
The average net gain in dividend and price was 42.44% on $10k invested as $1k each in these ten basic materials dogs. This gain estimate was subject to average volatility 82% less 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.