Results from basic materials sector stocks calculated as of September 30, 2013 projecting gain results one year hence showed EV Energy Partners LP (NASDAQ:EVEP), the oil and gas drilling and exploration firm specializing in the acquisition, development and production of properties from Michigan to Texas, led the sector with a 29.20% price upside.
Since the fall of 2011 this report series applied dog dividend methodology to uncover 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 September 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 September 30 represented oil and/or gas industries. Just two of the top ten basic materials firms by yield did not mention oil or gas in their industry description including top dog, Great Northern Iron Ore Properties (NYSE:GNI), a steel and iron concern whose lease also expires in 2015, and Natural Resource Partners LP (NYSE:NRP), an industrial metals and minerals (COAL) firm, in third place.
The balance of the ten top dogs by yield were O&G firms: Linn Energy, LLC (LINE) an independent, in second; Nustar Energy LP, a pipeline firm took fourth; BreitBurn Energy Partners LP (BBEP) a driller, was fifth; Hogoton Royalty Trust (NYSE:HGT), classified as a driller in this sector was sixth; Cross Timbers Royalty Trust another driller, was seventh; BP Prudhoe Bay Royalty Trust (NYSE:BPT), listed as a refiner and marketer by Yahoo, was eighth; Vanguard ; PVR Partners, L.P (NYSE:PVR), an O&G equipment firm, was ninth; MV Oil Trust Unit (NYSE:MVO), another driller, was tenth.
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 9/30/2013 compared to those of the Dow of 9/17. 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): Basic Materials Top Ten Dogs Got Confused; Dow Got Bullish
Dividend from $1k invested in each BasMat dog dropped, and aggregate single share price also dropped since August. Dividend from $10k invested as $1K in each of the top ten BasMat stocks dropped at a rate of 1%, while total single share price dropped 0.6% in that period. The market signal was fully mixed.
For the Dow dogs, meanwhile, annual dividend from $10k invested as $1K in each of the top ten dropped 1.5% since August, while aggregate single share price hopped up 6%, ending a bear track since June. Dow dogs increased 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, compressed to $125 or 33% in August then expanded to $161 or 43% for September.
To quantify the top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential and so were added to the simple high yield "dog" metric used to dig out bargains.
Actionable Conclusion (2): Wall Street Wizard Wisdom Weighed Over 17% 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 September 30, 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.
Yahoo projected a 6% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 5% 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.
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 stocks movement opposite of market direction.
Actionable Conclusion Three (3): Analysts Forecast 10 Basic Materials Sector Dogs to Net 14.8% to 35.4% By September 2014
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
Linn Energy, LLC netted $354.05, based on dividend plus mean target price estimates from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 24% less than the market as a whole.
EV Energy Partners LP netted $353.80 based on estimates from eight analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 40% less than the market as a whole.
Natural Resource Partners netted $346.72, based on dividends plus mean target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 34% greater than the market as a whole.
BreitBurn Energy Partners LP netted $318.04 based on dividends plus mean target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 23% less than the market as a whole.
PVR Partners, L.P. netted $233.67 based on a mean target price estimate from seven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 19% less than the market as a whole.
Pengrowth Energy Corporation (NYSE:PGH) netted $195.85, based on dividends plus a mean target price estimate by nine analysts less broker fees. The Beta number showed this estimate subject to volatility 64% greater than the market as a whole.
Vanguard Natural Resources (NASDAQ:VNR) netted $194.36 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 13% greater than the market as a whole.
Nustar Energy LP (NYSE:NS) netted $168.59 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.
Legacy Reserves LP (NASDAQ:LGCY) netted $157.31 based on estimates from eight analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 15% greater than the market as a whole.
Exterran Partners LP (EXLP) netted $148.57 based on dividends plus mean target price estimate from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 27% greater than the market as a whole.
The average net gain in dividend and price was over 24.7% on $1k invested in each of these ten dogs. This gain estimate was subject to average volatility 6% 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 PGH, GE, INTC, MCD, MSFT, 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.