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Summary

  • Ten Basic Materials sector dividend dogs delivered 1 yr. upsides averaging 8.8% through June.
  • Top ten Basic Materials dogs backed away from bears as Dow dogs chased bulls into July.
  • Analysts projected average 16.6% 1 yr. net gains for ARP, NTI, OCIP, LNCO, MCEP, NSLP, MEMP, LRE, LINE, & QRE.
  • Consider these stocks as possible starting points for your Basic Materials dividend dog July stock purchase research.

Yield (dividend/price) results from here verified by Yahoo Finance for small, mid, & large cap Basic Materials stocks as of market closing prices July 3 compared with analyst 1-yr target projections led to four actionable conclusions discussed below.

Wall Street Wizard Weights

One-year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment were used to compare ten stocks showing the highest upside price potential into 2015 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 was considered optimal for a valid mean target price estimate.

Actionable Conclusion (1) Ten Basic Materials Dividend Dogs Cast Upsides from 3% to 14% in July Estimates

Thirty For the Money

Since the fall of 2011 this report series has 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 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.

Dog Metrics Sifted Basic Materials Sector Stocks by Yield

All of the top ten basic materials stocks showing the biggest dividend yields as of July 3 represented oil and/or gas (o&g) industries. Top dog, Sandridge Mississippian Trust (NYSE:SDR) was one of six independent o&g firms. The other five indies placed two, three, six, eight & nine: Sandridge Permian Trust (NYSE:PER); MV Oil Trust (NYSE:MVO); Atlas Resource Partners, L.P. (NYSE:ARP); LRR Energy L.P. (NYSE:LRE); QR Energy LP (NYSE:QRE).

Two o&g refiners and marketers, Eagle Rock Energy Partners L.P. (NASDAQ:EROC), and BP Prudhoe Bay Royalty Trust (NYSE:BPT), placed fourth, and seventh. Two drillers, Hugoton Royalty Trust (NYSE:HGT), & Seadrill Limited (NYSE:SDRL), placed fifth & tenth, to complete the top ten for July.

Sector Leading Dividend vs. Price Results Compared to Top Dow Index Dogs

Relative strengths of the top ten basic materials dogs graphed below by yield was plotted as of market close 7/3/2014 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 prices of those ten stocks created the data points shown in green for price and blue for dividends.

(click to enlarge)

Actionable Conclusion (2): Basic Materials Top Ten Retreated As Dow Dogs Stayed Bullish into July

Dividend from $10k invested as $1k in each basic material top ten dog jumped up while the aggregate single share price of those ten fell since June. Dividend increased at a rate of 16% while total single share price dropped 12% in that period. July's bullish market signal was mostly influenced by soaring prices replacement of four top ten dividend payers.

Dow dogs frolicked as projected annual dividend from $10k invested as $1K in each of the top ten declined 1.4% since June. At the same time aggregate single share price inclined 4% to confirm the bullish turn. 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 increased. The overhang of $111 or 29% in December/January, grew to $132 or 35% in February, expanded to $136 or 36% in March, widened again to $180 or 49% for April, retreated to $167 or 43% in May, expanded to $193 or 53% for June, then swelled to $222 or 62% in July to make the widest gap in two years. Much of the recent move was attributable to general price rises most notably by INTC (which fell out of the top ten in late June), & CSCO.

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 Street Wizards Wrought A 14.8% Net Gain from Top 20 Basic Materials Dogs Come July 2015

Top twenty sector dogs were graphed below to show relative strengths by dividend and price as of July 3, 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 upsides to 2015.

Historic prices and actual dividends paid from $1000 invested in each of the ten highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 2 created the 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.

(click to enlarge)

Yahoo projected a 4% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 4.5% 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 (n/a).

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 (4): Analysts Figure 10 Basic Materials Sector Dogs to Net 11% to 22.5% By 2015

Just three of the ten top dividend yielding basic materials dogs were verified as being among the top gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy for basic materials as graded by Wall St. wizards was only 30% accurate.

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

Atlas Resource Partners netted $225.45 based on estimates from nine analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 49% less than the market as a whole.

Northern Tier Energy LP (NYSE:NTI) netted $209.18 based on estimates from eight analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 35% greater than the market as a whole.

OCI Partners LP (NYSE:OCIP) netted $205.41 based on estimates from three analysts plus dividends less broker fees. A Beta number was not available for OCIP.

LinnCo LLC (NASDAQ:LNCO) netted $190.97 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 88% less than the market as a whole.

Mid-Con Energy Partners (NASDAQ:MCEP) netted $182.16 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 55% greater than the market as a whole.

New Source Energy Partners (NYSE:NSLP) netted $161.27 based on estimated restored dividends plus mean target price estimate from five analysts less broker fees. A Beta number was not available for NSLP.

Memorial Production Partners LP (NASDAQ:MEMP) netted $134.82, based on dividends plus a mean target price estimate from ten analysts less broker fees. The Beta number showed this estimate was subject to volatility 66% less than the market as a whole.

LRR Energy L.P. netted $120.86, based on dividend plus mean target price estimates from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 18% more than the market as a whole.

Linn Energy LLC. (NASDAQ:LINE) netted $114.67, based on dividends plus a mean target price estimate by twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 34% less than the market as a whole.

QR Energy LP netted $114.11 based on dividends plus the mean of annual price estimates from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 35% less than the market as a whole.

Average net gain in dividend and price was over 16.5% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 21% less than the market as a whole.

The stocks listed above were suggested only as decent starting points for your basic materials 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.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from www.indexarb.com; www.dividend.com; finance.yahoo.com; analyst mean target price by Thompson/First Call in Yahoo Finance.

Source: 5 Basic Materials Dividend Dogs Chase 11.3% To 14.2% July Upsides