This monthly report tallied results from here as verified using Yahoo Finance data for utilities sector stocks as of market closing prices January 13 along with analyst mean target price results one year hence. The comparison found four utilities producing near 12% to 20% price upsides.
At the low end of the top four, Southern Company (NYSE:SO), the Atlanta based diversified utility, showed 11.95% price upside. Integrys Energy Group (NYSE:TEG), the Chicago headquartered gas company with 11.99% upside, placed second lowest of the four. First Energy (NYSE:FE), the Akron, OH electric utility generated a 19.27% upside to take second. At the top, TransAlta Corp. (NYSE:TAC), the Calgary, Canada based diversified utility, exhibited a 19.84% price upside to lead the January utilities sector. Six more dogs at the back of the utilities pack showed 6.87% to 8.48% price upsides. This was the first actionable conclusion within this article.
The chart above used one year mean target price set by brokerage analysts matched against January 13 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.
Thirty For the Money
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). In the past year the series has expanded to report (1) dividend yield, (2) price upside, (3) net gain results based on analyst 1 yr target projections.
Dog dividend methodology is based on Michael B. O'Higgins book "Beating The Dow" (HarperCollins, 1991), which revealed how high yielding stocks whose prices increased (and whose dividend yields therefore decreased) could be sold off once a year to sweep gains and reinvest the seed money into higher yielding stocks in the same index. Now named Dogs of the Dow, O'Higgins system also works to find bargains in any collection of dividend paying stocks. Utilizing analyst price upside estimates has expanded the stock lists to include popular growth equities, if desired.
The report below tallied yield (dividend / price) results from Yahoo Finance for the utilities sector as of market closing prices January 13 and compared them to results for the top ten dogs of the Dow. Arnold top utilities dog selections for January were disclosed below step by step. Three additional actionable conclusions were drawn to bring the total to four including the price upside insight noted above.
Dog Metrics Gauged Utilities Stocks by Yield
Ten top utilities sector stocks that showed the biggest dividend yields January 13, per Yahoo Finance data, represented three industries: diversified; gas, electric. Top two dogs, TransAlta Corp. and Just Energy Group, Inc. (Canada) (NYSE:JE) represented the diversified utilities. Three gas firms placed third, ninth, and tenth: Suburban Propane Partners (NYSE:SPH); Integrys Energy Group, National Grid PLC (NYSE:NGG). Five electric firms dominated the middle of the list, claiming slots four through eight: FirstEnergy Corporation, Pepco Holdings, Inc. (POM), Entergy Corp (NYSE:ETR), Hawaiian Electric Industries (NYSE:HE), TECO Energy, Inc. (NYSE:TE).
Dividend vs. Price Results Compared to Dow Dogs
The graphs below compare relative strengths of the top ten utilities sector dogs by yield as of market close 1/13/2014 with those of the Dow industrials index. 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 made the data points shown in green for price and blue for dividends.
Actionable Conclusion (2): Utilities Dogs Chased Bulls As Dow Dogs Ran from Bears
Utilities dividend payers as of January 13 showed sagging dividends from $10k invested as $1k in each of the top ten stocks, while aggregate single share price of those ten popped up. Dividends dropped at a rate of 4.3% since November while total single share price surged over 10% for that period as four new dogs pushed into the top ten.
For the Dow dogs, meanwhile, projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs increased over 2.5% since November as aggregate single share price fell nearly 4%. The Dow dogs overbought condition in which aggregate single share price of the ten exceeded projected annual dividend from $10k invested in those ten (@$1k each) shrank again. The overhang was $161 or 43% for September, shrank down to $111 or 30% for October, expanded to $140 or 38% to end November, shrank back to $111 or 29% into December/January.
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 (3): Wall Street Wizards Expect Nearly 10% Net Gain from Top 20 Utilities Dogs Come 2015
Top twenty dogs for the utilities sector were graphed below to show relative strengths by dividend and price as of January 13, 2014, and those projected by analyst mean price target estimates to the same date in 2015.
A hypothetical $1,000 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 2015.
Historic prices and actual dividends paid from $20,000 invested as $1k in each of the highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 2 created data points for 2014. Projections based on estimated dividend amounts from $1,000 invested in the twenty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 2 created the 2015 data points green for price and blue for dividend.
Yahoo projected a near 6.4% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by over 7% 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 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 market direction.
Actionable Conclusion (4): Analysts Forecast 2015 Utilities DiviDogs to Net 9% to 26%
Only four 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 40% accurate.
Ten probable profit generating trades were revealed by Thomson/First Call in Yahoo Finance by 2015:
TransAlta Corp netted $284.05 based on dividends plus a mean target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 70% less than the market as a whole.
First Energy netted $241.58, based on dividends plus mean target price estimate from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 89% less than the market as a whole.
Integrys Energy Group netted $150.68 based on estimates from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 50% less than the market as a whole.
Southern Company netted $148.65 based on estimates from fifteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 5% opposite the market as a whole.
PPL Corporation (NYSE:PPL) netted $121.87, based on dividend plus mean target price estimates from eighteen analysts less broker fees. The Beta number showed this estimate subject to volatility 86% less than the market as a whole.
Duke Energy (NYSE:DUK) netted $111.33 based on estimates from twenty analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 91% less than the market as a whole.
Unitil Corp. (NYSE:UTL) netted $98.39 based on dividends plus a mean target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 72% less than the market as a whole.
National Grid PLC netted $95.57 based on estimates from three analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 58% less than the market as a whole.
Public Service Enterprise (PRG) netted $92.45 based on estimates from seventeen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 88% less than the market as a whole.
UIL Holdings, Inc. (UIL) netted $89.12 based on estimates from eleven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 68% less than the market as a whole.
The average net gain in dividend and price was 14.3% on $10k invested as $1k in each of these ten utilities dogs. This gain estimate was subject to average volatility 78% less than the market as a whole.
The 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.
Stocks listed above were suggested only as possible starting points for your index dog 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 CSCO, CVX, 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.