Last month your intrepid Dogs of the Index strategist began applying dog dividend methodology to each of eight major market sectors. In alphabetical order these sectors are: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities.
The ninth sector, conglomerates, according to Yahoo Finance, contains just eight firms-- five of which pay dividends. Thus the reporter declined to apply dogs of the index metrics to such a limited universe, declaring "such a task is comparable to a dog show judge trying to evaluate a Chihuahua based on St. Bernard conformation standards."
Dogs of the Index Metrics Used to Select The Top Ten Sector Stocks
Two key metrics determine the yields that rank index or sector dog stocks: (1) stock price; (2) annual dividend. Dividing the annual dividend by the price of the stock declares the percentage yield by which each dog stock is ranked. Investors select portfolios of five or ten stocks in any one index or sector by yield to trade. They await the results from their investments in the lowest priced, highest yielding stocks they selected and pray that the price of every stock they now own climbs higher (having locked in a high yield percentage at purchase).
This Dogs of the Index strategy, popularized by Michael B. O'Higgins in the book "Beating The Dow" (HarperCollins, 1991), reveals how low yielding stocks whose prices increase (and whose dividend yields therefore decrease) can be sold off once each year to sweep gains and reinvest the seed money into higher yielding stocks in the same index.
Comparative Methods Used
First, the entire list of basic materials sector companies is sorted by yield as of January 20, using Ycharts.com to reveal the top thirty. Market performance of these thirty selections is then reviewed using four months of historic projected annual dividend history from Yahoo Finance.
Thereafter, today's article goes on to assess the relative strengths of the basic materials sector top ten dividend dogs as of January 20 vs. the Dogs of the Dow January 13 stock list. Annual dividends from $1000 invested in the ten highest yielding stocks in the sector and index are compared to the aggregate single share prices of the top ten stocks in the sector and index.
Basic Materials Dividend Dogs
Click to enlarge images
The top ten basic materials stocks paying the biggest dividends in January are mostly in the oil and/or gas industry: Whiting (NYSE:WHX); Ferrellgas (NYSE:FGP); San Juan (NYSE:SJT); Calumet (NASDAQ:CLMT); Enerplus (NYSE:ERF); BreitBurn (NASDAQ:BBEP); QR Energy (NYSE:QRE). Only three of the top ten basic materials firms do not mention oil and gas in their industry description: Great Northern (NYSE:GNI); Oxford (NYSE:OXF); Rhino (NYSE:RNO). Of the top thirty only eight do not mention oil and gas in their industry description. The five non oil & gas firms in the lower 20 basic materials sector are: Terra (NYSE:TNH); Southern (NYSE:SCCO); CVR Partners (NYSE:UAN); Natural Resource (NYSE:NRP); Penn Virginia (NYSE:PVR).
Vertical Moves in Basic Materials Dividend Dog Stocks
Going back four months, two firms-- one oil and gas and one steel and iron-- claimed the top of this list by yield. Oil and gas firm Torch Energy (NYSE:TRU) slid off the top 30 list in January based on a revised annual dividend forecast of $.17 per share, leaving the top to the steel and iron company, Great Northern. Meanwhile, the middle and bottom of the list featured the most active shares. For instance, Regency (NYSE:RGP) gained value moving from seventeenth place at $21.27 in October to twenty-seventh place at $23.37 in December and off the list at a $25 price in January. Moving in the opposite direction, Ferrellgas went from eleventh place at $21.72 in November, to third place at $17.40 in January. If FGP can manage a price drop to $10 it might capture the top slot by yield next month.
Color code shows: (Yellow) firms listed in first position at least once between October 2011 and January 2012; (Cyan Blue) firms listed in tenth position at least once between October 2011 and January 2012; (Magenta) firms listed in twentieth position at least once between October 2011 and January 2012; (Green) firms listed in thirtieth position at least once between October 2011 and January 2012. Duplicates are depicted in color for highest ranking attained.
Click to enlarge images
Dividend vs. Price Results for Basic Materials vs. Dow Dogs
Below is a graph of the relative strengths of the top ten basic materials dividend sector stocks by yield as of January 20, 2012 compared to those of the Dow. Using four months of historic projected annual dividend history from $1000 invested in the ten highest yielding stocks each month and the total single share prices of those ten stocks creates the data points for each month shown in green for price and blue for dividends.
Click to enlarge images
Conclusion: A Purebred Team of Pit Bulls Runs Zig Zags
The January basic materials collection of 30 mainly oil and gas dividend payers shows multi-directional market performance during recent months. Unlike other sectors in which aggregate dividends increase when aggregate prices fall, the basic materials sector shows dividends and prices in lock step rising and falling together at the monthly points surveyed.
Meanwhile, the Dow index moved to within $3.50 of convergence as dividends from $1k invested in the top ten nearly overlap aggregate total single share prices this month. The basic materials sector top ten show bigger dividends (with equally bigger risk) at a lower share price than the Dow as of January 20.
At the end of each month, two summaries will conclude this new series of articles by showing comparative results of yield and price for all eight sectors reported: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities.
Disclaimer: This article is for informational and educational purposes only and shall 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 are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.