Price results from healthcare sector stocks calculated as of September 30, 2013 were compared to analyst mean target price projections one year hence. The resulting chart from that data (shown below) featured eight stocks exhibiting 9% to 21% price upsides. Medtronic, Inc. (NYSE:MDT) the Minneapolis based medical appliances & equipment industry firm with 9.23% showed the lowest upside of those eight. Baxter International, Inc. (NYSE:BAX) a Deerfield, IL based medical instruments & supplies industry firm exhibited a 21.24% price upside to lead the sector.
The chart above used one year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment to compare ten healthcare 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 series of articles 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).
This report presumed yield (dividend / price) dividend dog methodology applied to any sector and compared that sector side by side with the Dow industrial index leaders. Below, the Arnold Healthcare Sector top dog selections for September were disclosed step by step.
Dog Metrics Filtered Out Ten Top Healthcare Stocks
Three industries were represented by the ten healthcare sector stocks showing highest dividend yields as of September 30 on Yahoo Finance. The top healthcare sector stocks were two of eight drug manufacturers - major on this list: AstraZeneca PLC (AZM), and GlaxoSmithKline (NYSE:GSK). PetMed Express (NASDAQ:PETS), in third, represented drug delivery firms. The other six major drug manufacturers placed fourth through seventh, ninth and tenth: Eli Lilly and Company (NYSE:LLY); Merck & Co. Inc. (NYSE:MRK); Pfizer, Inc. (NYSE:PFE); Novartis AG (NYSE:NVS); Johnson & Johnson (NYSE:JNJ); Bristol-Myers Squibb Company (NYSE:BMY). Meridian Bioscience, Inc. (NASDAQ:VIVO), a diagnostic substances firm, completed the top ten healthcare dogs in eighth place.
Dividend vs. Price Results Compared to Dow Dogs
The graph below of relative strengths of the top ten healthcare sector dogs by yield as of market close 9/30/2013 compared to those of the Dow industrials index was prepared to show projected annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks along with the total single share price of those ten stocks with the data points shown in green for price and blue for dividends.
Actionable Conclusion (1): Healthcare Nearly Bullish While Dow Dogs Were Very Much So
The Healthcare collection of dividend payers turned nearly bullish after August as total single share price popped up 11.6%. However, aggregate dividend from $10k invested as $1k in each of the top ten healthcare dogs also increased at a rate of .0.69% for the period. The healthcare pack expanded its overbought territory as aggregate single share price exceeded the dividend derived from $1K invested in each after April this year. The gap between dividend and price narrowed from $114 or 31% in July to $64 or 17% in August, now expanded to $112 or 30% for September.
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 Willed An 8% Net Gain from Top 20 Healthcare Dogs Come 2014
Top twenty dogs for the health 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 5% lower dividend from $10K invested in this group while aggregate single share price for those ten was projected to increase by 6% 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 stock was provided in the far right column of 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 (3): Analysts Forecast Ten 2014 Healthcare DiviDog Net Gains of 8.2% to 22.2%
Five of the ten top dividend yielding healthcare dogs were verified as being among the ten gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy for the financial sector as graded by Wall St. wizards was 50% accurate.
Ten probable profit generating trades were revealed by Thompson/First Call in Yahoo Finance for 2014:
Baxter International, Inc. netted $222.28 based on estimates from fifteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 39% less than the market as a whole.
Teva Pharmaceutical (NYSE:TEVA) netted $181.06, based on dividends plus mean target price estimates from twenty analysts less broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole.
Eli Lilly and Company netted $153.43 based on dividends plus mean target price estimate from sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 69% less than the market as a whole.
Covidien plc (COV) netted $140.63 based on dividends plus the mean of annual price estimates from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 14% greater than the market as a whole.
GlaxoSmithKline netted $119.91 based on estimates from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 40% less than the market as a whole.
Pfizer Inc. netted $111.19 based on dividend plus a mean target price estimate from sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 19% less than the market as a whole.
Sanofi (NYSE:SNY) netted $105.10, based on dividends plus mean target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 15% more than the market as a whole.
Medtronic, Inc. netted $93.26 based on dividends plus mean target price estimate from sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole.
Merck & Co. Inc. netted $89.13 based on dividends plus the mean of annual price estimates from fifteen analysts less broker fees. The Beta number showed this estimate subject to volatility 44% less than the market as a whole.
Johnson & Johnson netted $82.71 based on a mean target price estimate from sixteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 51% less than the market as a whole.
The average net gain in dividend and price was 14.43% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 24% 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 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.
Disclosure: I am long JNJ, PFE, GE, INTC, MCD, MSFT, 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.