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Summary

  • Ten Basic Materials sector dividend dogs were found to promise 1-year upsides averaging 15.6% through August 2015.
  • Top ten Basic Materials dogs ran with bulls as Dow dogs retreated from bears after July.
  • Analysts projected average 23.2% 1-year net gains for OCIP, UAN, ARP, MCEP, NTI, LNCO, SDRL, VNR, LINE & CLMT.
  • Consider these stocks as possible starting points for your Basic Materials dividend dog August 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 August 13 compared with analyst 1-year 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 Showed Upsides from 7.76% to 40.7% by Analyst August Estimates

Thirty For the Money

Since late 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 two years, the series expanded to report (1) dividend yield; (2) price upside; and (3) net gain results based on analyst 1-year 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 Sorted Basic Materials Sector Stocks by Yield

All of the top ten basic materials stocks showing the biggest dividend yields as of August 13 represented oil and/or gas (o&g) industries. Top dog, SandRidge Permian Trust (NYSE:PER) was one of seven independent o&g firms. The other six independents placed three, four & seven through ten: MV Oil Trust (NYSE:MVO); Atlas Resource Partners, L.P. (NYSE:ARP); LRR Energy L.P. (NYSE:LRE); LinnCo LLC (NASDAQ:LNCO); QR Energy LP (NYSE:QRE); and Memorial Production Partners LP (NASDAQ:MEMP).

One o&g refiner and marketer, BP Prudhoe Bay Royalty Trust (NYSE:BPT), placed second. Two drillers, Hugoton Royalty Trust (NYSE:HGT) & Seadrill Limited (NYSE:SDRL), placed fifth & sixth, to complete the top ten for August.

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

Relative strengths of the top ten basic materials dogs graphed below by yield were plotted as of market close 8/13/2014 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 prices of those ten stocks created the data points shown in green for price and blue for dividend.

(click to enlarge)

Actionable Conclusion (2): Basic Materials Top Ten Romped Bullishly As Dow Dogs Retreated into August

Dividend from $10k invested as $1k in each basic material top ten dog fell while the aggregate single share price of those ten jumped up since July. Dividend dropped at a rate of 12.3% while total single share price popped 11.5% in that period. August's bullish market signal was mostly influenced by two high priced, lower yielding issues replacing two lower priced, higher yielding stocks in top ten basic materials dog list.

Meanwhile, Dow dogs reversed and retreated by showing bigger annual dividend from $10k invested as $1k in each of the top ten ascending 4.2% after July, while aggregate single share price dropped 3.4%.

As a result, the Dow dogs overbought condition (in which aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k each in those ten) declined from its new high. The overhang was $145 or 38% for January; retreated to $125 or 33% in February; swelled to $149 or 40% in March; expanded to $173 or 47% in April; shrank to $170 or 46% come May; swelled to $215 or 59% for July; then fell back to $186 or 50% in August.

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 provided another tool to dig out bargains.

Actionable Conclusion (3): Wall Street Wizards Wishes Wrung A 17.3% Net Gain from Top 20 Basic Materials Dogs For August 2015

Top twenty sector dogs were graphed below to show relative strengths by dividend and price as of August 13, 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 9.5% lower dividend from $10K invested in this group, while aggregate single share price was projected to increase by 11.3% 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 Calculated 10 Basic Materials Sector Dogs to Net 15% to Nearly 48% 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:

BASMAT (5) TOPSTOX AUG14-15

OCI Partners LP (NYSE:OCIP) netted $477.79 based on estimates from four analysts plus dividends less broker fees. A Beta number was not available for OCIP.

CVR Partners L.P. (NYSE:UAN) netted $259.15 based on estimated restored dividends plus mean target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 18% less than the market as a whole.

Atlas Resource Partners netted $258.43 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.

Mid-Con Energy Partners (NASDAQ:MCEP) netted $238.30 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.

Northern Tier Energy LP (NYSE:NTI) netted $223.88 based on estimates from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 35% greater than the market as a whole.

LinnCo LLC netted $211.60 based on a mean target price estimate from six 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.

Seadrill Limited netted $192.20 based on dividends plus the mean of annual price estimates from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 42% greater than the market as a whole.

Vanguard Natural Resouces (NASDAQ:VNR) netted $158.67, based on dividends plus a mean target price estimate from eleven analysts less broker fees. The Beta number showed this estimate was subject to volatility 14% less than the market as a whole.

Linn Energy LLC. (NASDAQ:LINE) netted $152.99, 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.

Calumet Specialty Products (NASDAQ:CLMT) netted $149.23, based on dividend plus mean target price estimates from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.

Average net gain in dividend and price was over 23.2% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 3% greater 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 Thomson/First Call in Yahoo Finance.

Disclosure: The author is long CSCO, GE, INTC, MSFT, PFE, T, VZ. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: 7 Basic Materials Dividend Dogs Hunt 10.3% To 40.7% August Upsides