Price results from utilities 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 five stocks exhibiting 9% to 18% price upsides. FirstEnergy Corp. (NYSE:FE) the Akron, OH headquartered electric company with 9.01% showed the lowest upside of those five. Southern Company (NYSE:SO) the Atlanta based electric utility flashed 9.06%. Two diversified utilities Duke Energy Corporation (NYSE:DUK) from Charlotte NC and Unitil Corp. (NYSE:UTL) from Hampton, NH exceeded 10%. TransAlta Corp. (NYSE:TAC) the Calgary, Canada based diversified utility exhibited an 18.28% price upside to lead the sector.
The chart above used one-year mean target price set by brokerage analysts matched against September 30 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 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 Utilities Sector top dog selections for September were disclosed step by step:
Dog Metrics Uncovered Ten Top Utilities Stocks
Ten top utilities sector stocks that showed the biggest dividend yields September 30 per Yahoo Finance data represented three industries: electric; gas; diversified. Top dog, Atlantic Power Corporation (NYSE:AT) was tops of five electric firms listed. The other electrics were in sixth, seventh, ninth, and tenth places: FirstEnergy Corporation; Pepco Holdings, Inc. (NYSE:POM); TECO Energy (NYSE:TE); Southern Company. One diversified utility, TransAlta Corp. was listed second. In the third slot, AmeriGas Partners (NYSE:APU) was the top yielding of four gas firms. The others placed fourth, fifth, and eighth: Suburban Propane Partners (NYSE:SPH); National Grid plc (NYSE:NGG); and Gas Natural (NYSEMKT:EGAS).
Dividend vs. Price Results Compared to Dow Dogs
The graph below of relative strengths of the top ten utilities 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): Utilities Dogs Unsettled While Dow Dogs Were Bullish
Utilities dividend payers as of September 30 showed increased dividend from $10k invested as $1k in each of the top ten stocks, while aggregate single share price of those ten also went up. Dividend rose at a rate of 4% after August while total single share price improved 5% for that period.
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 Wizards Expect 9.8% Net Gain from Top 20 Utilities Dogs Come 2014
Top twenty dogs for the technology 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 6.3% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 7% 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 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 Predict 2014 Utilities DiviDogs to Net 11% to 24.8%
Six of the ten top dividend yielding utilities 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 this sector as graded by Wall St. wizards was 60% accurate.
Ten probable profit generating trades were revealed by Thompson/First Call in Yahoo Finance for 2014:
TransAlta Corp. netted $248.05 based on dividends plus a mean target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 71% less than the market as a whole.
Atlantic Power Corporation netted $137.08, based on dividends plus mean target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 70% less than the market as a whole.
FirstEnergy Corp. netted $129.84 based on estimates from sixteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 95% less than the market as a whole.
Unitil Corp. netted $128.47 based on dividends plus a mean target price estimate from four analysts less broker fees. The Beta number less than the market as a whole.
Duke Energy Corporation netted $127.05 based on estimates from nineteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 91% less than the market as a whole.
National Grid plc netted $124.45, based on dividend plus mean target price estimates from two analysts less broker fees. The Beta number showed this estimate subject to volatility 60% less than the market as a whole.
Southern Company netted $119.87 based on estimates from sixteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 97% less than the market as a whole.
Pepco Holdings, Inc. netted $116.27 based on estimates from twelve analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 81% less than the market as a whole.
Integrys Energy Group (NYSE:TEG) netted $114.75 based on estimates from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 50% less than the market as a whole.
Brookfield Infrastructure Partners (NYSE:BIP) netted $112.31 based on estimates from seven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 53% less than the market as a whole.
The average net gain in dividend and price was 13.58% on $1k invested in each of these ten utilities dogs. This gain estimate was subject to average volatility 75% 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 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.
Disclosure: I am long AT, 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.