Challenger Dogs' 10.5% To 21% February Upsides Were Very Basic

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 |  Includes: APLP, BBEPQ, DPM, EEP, EPB, EVEP, NMM, SDRL, STON, TLP
by: Fredrik Arnold

Summary

10 top Challenger dividend dogs showed hearty 1 yr. upsides of 14% to 21% as of February 28 (as ranked by analyst mean target price).

Top yielding Challenger index top ten dogs (by yield) sent a mixed up sign as both dividend and price rose. Meanwhile a bear attacked the dogs of the Dow.

Analysts projected average 23.1% 1 yr. net gains for STON, EVEP, EPB, SDRL, NMM, EXLP, EEP, TLP, BBEP, and DPM.

Consider these stocks as possible starting points for your Challenger index dividend dog stock purchase research.

Yield (dividend/price) results from David Fish's Dividend Challengers Index members as of market closing prices February 28 were compared with analyst mean target gain results one year out. The resulting chart of that data below displayed eight basic materials sector stocks and two from services posting 10.51% to 20.98% price upsides.

Below, Arnold top dog selections for February by yield, price upsides, and net gain upsides were disclosed step by step. Four actionable conclusions were drawn.

Actionable Conclusion (1): 10 Challenger Dogs Beg 10.5% to 21% Mostly Basic Upsides Come February 2015

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 Challengers Index 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

This article was written to reveal bargain stocks to buy and hold for at least one year. It is one component in an ongoing series that has reported (1) dividend yield; (2) price upside; (3) net gain results based on analyst 1 yr target projections. Stocks reported were termed dogs because they were all selected 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, named Dogs of the Dow. O'Higgins system works to find bargains in any collection of dividend paying stocks. Utilizing analyst price upside estimates expanded the stock universe to include popular growth equities, if desired.

Dog Metrics Measured Challenger Index Stocks by Yield

David Fish's February 28 Challengers list contained stocks distinguished by having paid increasing dividends for 5 to 9 straight years and were ranked by yield to reveal the top ten.

Ten challenger dogs posting the biggest projected February dividend yields included firms representing four of nine market sectors: basic materials (5); services (2); financials (2); utilities (1). Top dog was Seadrill Limited (NYSE:SDRL), the best of those five basic materials companies. Other basic materials firms took slots three, and six through eight: BreitBurn Energy Partners LP (BBEP); EV Energy Partners LP (NASDAQ:EVEP); El Paso Pipeline Partners LP (NYSE:EPB); Vanguard Natural Resources LLC (NASDAQ:VNR).

Five non-basic firms completed the top ten challengers dogs list: Two services sector representatives, Navios Maritime Partners LP (NYSE:NMM), and StoneMor Partners LP (NYSE:STON), were second and fifth dogs. The financial firms, PennyMac Mortgage Investment Trust (NYSE:PMT) and Starwood Property Trust Inc. (NYSE:STWD) placed fourth and ninth. The lone utilities representative, AmeriGas Partners LP (NYSE:APU) was tenth.

Dividend vs. Price Results Compared to Dow Dogs

Periodic strength of ten top Challenger dogs by yield was graphed below as of market closing prices through 2/28/2013 and compared to those of the Dow. Projected annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks and the total single share price of those ten stocks created the data points shown in green for price and blue for dividend.

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Actionable Conclusion (2): Challengers Were Mixed Up As Dow Dogs Retreated

Aggregate single share price of the top ten Challengers by yield inclined 0.97% since January. When dividend from $10k invested as $1k in each of those top ten dogs also inclined 4.5% for that period the result was a mixed up signal for February.

Gloom returned to the Dow dogs as projected annual dividend from $10k invested as $1K in each of the top ten increased 0.62% since January. At the same time aggregate single share price fell 3.4% to confirm the bearish sign. The Dow dogs overbought condition in which aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten fell back. The overhang was $140 or 38% in November, closed a bit to $111 or 29% for December, expanded to $145 or 38% for January, then retreated to $125 or 33% in February. Most of this recent gloom on the Dow was triggered by Coca-Cola Co. (NYSE:KO) replacing Microsoft (NASDAQ:MSFT) at the tail of the top ten Dow accompanied by a General Electric (NYSE:GE) price drop propelling GE higher by yield.

To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metric, analyst mean price target estimates is another tool used to dig out bargains.

Actionable Conclusion (3): Wall St. Wizards Saw A 15.2% Net Gain from Top 20 Dividend Challengers Index Dogs By February 2015

Top twenty dogs from David Fish's Dividend Challengers index were graphed below to show relative strengths by dividend and price as of February 28, 2014 and those projected by analyst mean price target estimates to the same date in 2015.

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 price upsides and net gains including dividends less broker fees as of 2014.

Historic prices and actual dividends paid from $1000 invested in the twenty 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 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 2015 data points green for price and blue for dividends.

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Yahoo projected a 9% lower dividend from $10K invested in this group ($1k each) while aggregate single share price was projected to increase nearly 10% 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 estimate.

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 (3): Analysts Forecast 10 Dividend Challenger Dogs to Net 18% to 28.5% By February 2015

Six of the ten top dividend yielding challenger 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 was deemed 60% accurate by Wall St. wizard projected 1 year mean target prices.

Ten probable profit generating trades revealed by Yahoo Finance into 2015 were:

StoneMor Partners LP netted $285.71 based on dividends plus a mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 37% less than the market as a whole.

EV Energy Partners LP netted $277.61 based on dividends plus mean target price estimate from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 64% less than the market as a whole.

El Paso Pipeline Partners netted $275.51 based on a mean target price estimate from twelve analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 93% less than the market as a whole.

Seadrill Limited netted $253.61 based on dividends plus a mean target price estimate by fourteen analysts less broker fees. The Beta number showed this estimate subject to volatility 37% more than the market as a whole.

Navios Maritime Partners netted $240.23 based on dividend plus mean target price estimates from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 88% greater than the market as a whole.

Exterran Partners LP (EXLP) netted $217.67 based on estimates from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 11% greater than the market as a whole.

Enbridge Energy Partners (NYSE:EEP) netted $204.48 based on dividends plus mean target price estimate from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.

Transmontaigne Partners (NYSE:TLP) netted $192.08 based on a mean target price estimate from four analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 35% less than the market as a whole.

BreitBurn Energy Partners netted $183.60 based on dividends plus mean target price estimate from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 30% less than the market as a whole.

DCP Midstream Partners (NYSE:DPM) netted $180.82 based on estimates from fifteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 21% less than the market as a whole.

The average net gain in dividend and price was over 23.1% on $1k invested in each of these ten dogs. This gain estimate was subject to average volatility 18% less than the market as a whole.

The above net gain estimates did not factor-in any 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 decent starting points for your index dog 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.