Led by Buenaventura Mining (BVN) a gold miner with a projected 41.78% price upside, Morningstar/YChart (M/Y) basic materials sector results tallied as of market closing prices August 21 compared with analyst mean target gain results one year hence showed healthy potential gains. Another gold stock flashed a 35% upside; iron and mixed minerals extracted a 40% price gain; fertilizer showed 37%, 17%, & 11% upsides; aluminum reflected a 36% upside; chemicals portended a 24% price gain; coal showed a 21% upside; paper pitched in with a 10% upside.
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 basic materials selections for July/August:
Dog Metrics Chose Ten M/Y Basic Materials Dogs
The ten best basic materials stocks showing the biggest dividend yields per the m/y screen as of August 21, 2013 represented four industries. Top basic materials stock by yield was Great Northern Iron (GNI) an industrial metals and minerals trust expiring in 2015. Four coal companies placed second, fifth, ninth, and tenth: Rhino Resource Partners (RNO); Natural Resources Partners (NRP); SunCoke Energy Partners (SXCP); Yanzhou Coal Mining (YZC). Hi-Crush Partners (HCLP), another metals and minerals firm placed seventh. Three agricultural input firms, Rentech Nitrogen Partners (RNF), CVR Partners (UAN), and Terra Nitrogen Company (TNH), placed third, fourth, and eighth. The lone chemicals firm, PetroLogistics (PDH) placed sixth 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 8/21/2013 compared to those of the Dow. Historic projected annual dividend history from $10,000 invested as $1k 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 as Dow Retreated
M/Y Basic materials collection of dividend payers showed mixed results for July/August. Price was down 9.25% since June. Aggregate dividend from $10k invested in each of the top ten stocks was down 8%.
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 dig out bargains.
Actionable Conclusion (2): Wall Street Wizard Wisdom Wished A 20% Net Gain from Top 20 M/Y Basic Materials Dogs
Top twenty dogs for the M/Y basic materials 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 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 10.5% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 6.3% 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. A negative beta number indicated the degree of stock price movement opposite market direction.
Actionable Conclusion (3): Analysts Predicted Ten M/Y Basic Materials DiviDogs To Net 13.4% to 145% in 2014
Ten probable profit generating trades were revealed by Thompson/First Call in Yahoo Finance for 2014:
Rentech Nitrogen Partners netted $480.96 based on dividends plus the mean of annual price estimates from six analysts less broker fees. The A Beta number was not available for RNF.
Buenaventura Mining netted $440.57 based on estimates from ten analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 49% less than the market as a whole.
Vale S.A. (VALE) netted $430.07, based on dividend plus mean target price estimates from twenty-one analysts less broker fees. The Beta number showed this estimate subject to volatility 49% greater than the market as a whole.
Noranda Aluminum Holding (NOR) netted $399.80 based on dividends plus the mean of annual price estimates from five analysts less broker fees. The Beta number showed this estimate subject to volatility 103% greater than the market as a whole.
Nevsun Resources (NSU) netted $371.44 based on dividends plus mean target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 41% less than the market as a whole.
PetroLogistics netted $318.91 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% opposite the market as a whole.
Natural Resource Partners netted $300.74 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 17% greater than the market as a whole.
CVR Partners netted $276.72 based on target estimates from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 14% less than the market as a whole.
Potash Corp of Saskatchewan, Inc. (POT) netted $143.65 based on dividends plus mean target price estimate from twenty-nine analysts less broker fees. The Beta number showed this estimate subject to volatility 56% less than the market as a whole.
Orchids Paper Products (TIS) netted $134.23, based on dividends plus a mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 17% opposed to the market as a whole.
The average net gain in dividend and price was 32.97% on $10k invested as $1k each in these ten basic materials dogs. This gain estimate was subject to average volatility 30% 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.