Coal, Oil & Gas Power Top Contender Divi-Dogs In January

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Includes: AHGP, APU, ARLP, BBL, BHP, COP, DPM, EPD, ETE, GEL, MUR, OKS, PAA, SXL, WMB
by: Fredrik Arnold

Summary

Ten top yielding Contenders (APU; BHP; OKS; ETE; WMB; BBL; PAA; DPM; ARLP; AHGP) displayed annual yields averaging 11.85% and retreated bearishly as Dow dogs mixed up after December.

50 top Dividend Dog Contenders (with 10 to 24 years of regular dividend hikes) ranged in yield from 3.82% to that 26.48% as of January 22 closing prices.

January 1yr. targets projected average 32.88% upside and 33.29% gains from thirty. Gains ranged from 38.9% to 88.6% for MUR, COP, PAA, EPD, WMB, GEL, SXL, DPM, ETE, and ARLP.

Ten top yielding Contender dogs showed 33.81% more net gain from $5k invested in the lowest priced five than from the same investment in all ten.

Consider these stocks as points of reference for your Contender dividend dog late-January investment investigation.

January Contender Dividend Dogs

Yield (dividend/price) results from David Fish's Dividend Contenders Index members (as of January 22) market closing prices were paired with annual dividends projected by dripinvesting.org December 31. That data charted below showed just one of nine business sectors represented by the with top ten yield Contenders: basic materials. Those ten stocks posted yields from 10% to 26.5%.

Actionable conclusions by yield, target price upsides and net gains were drawn below as top Contender dog selections for January were examined, step by step.

Actionable Conclusion (1) 10 Dividend Contender Dogs Averaged 15.12% Yield as of January 22

Seeking Alpha reader requests prompted this series of index-specific articles reporting dividend yield plus price upside results for these indices: Dow 30; S&P 500; S&P Aristocrats; Russell 2000; NASDAQ 100; Champions; Contenders; Challengers; CCC Combined; and Global. Bonus reports cover Bad Boy AllStars, and Sector Leaders.

Fifty Get the Money

This article was written to reveal bargain stocks to buy and hold up to one full year. See Dow 30 article for explanation of the term "dogs" for stocks reported based on Michael B. O'Higgins book "Beating The Dow" (HarperCollins, 1991), now 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, as desired.

Dog Metrics Gauged 50 Contender Stocks by Yield

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David Fish's Contenders list (from here) as of December 31 contained stocks distinguished as having paid increasing dividends for 10 to 24 years. Contender stocks listed below were ranked by yields calculated as of January 22 to reveal the top ten. Price data was sourced from Yahoo.com. Annual dividend calculations as of 12/31 came from dripinvesting.org.

As mentioned above, just one of nine Yahoo Finance market sectors were represented on the top ten contenders dog list selected by yield: basic materials: Alliance Holdings GP LP (NASDAQ:AHGP) [1]; Alliance Resource Partners LP (NASDAQ:ARLP) [2]; DCP Midstream Partners LP (NYSE:DPM) [3]; Plains All American Pipeline LP (NYSE:PAA) [4]; BHP Billiton plc. (NYSE:BBL) [5]; Williams Companies (NYSE:WMB) [6]; Energy Transfer Equity LP (NYSE:ETE) [7]; ONEOK Partners LP (NYSE:OKS) [8]; BHP Billiton Ltd. (NYSE:BHP) [9]. Last, but not least, AmeriGas Partners LP (NYSE:APU) [10], completed the top ten contender dogs by yield for January.

Contenders Dividend vs. Price Results Compared to Dow Dogs

Periodic strength of ten top Contenders by yield was graphed below as of 1/22/2016 and compared to that 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 history of those ten stocks created the data points shown in green for price and blue for dividend.

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Actionable Conclusions: (2) Contenders Retreated Bearishly, As (3) Dow Dogs Dithered Up Into January

Contender top ten dividend from $10k invested as $1k in each dog soared as aggregate single share price dropped after December to signal the retreat. Contenders top ten dog dividend rocketed up by 28% while price fell 23%. The Contenders widened their distance away from an overbought state. Dividend from $10k invested in the top ten Contenders nearly doubled the gap of 3.57 to 6.63 times more than the aggregated single share price of those stocks between late November and January.

Dow dogs, however, mixed up, with aggregate single share price for the ten growing 3% between November 25, and January 22, while annual dividend from $10k invested as $1K in each of the top ten increased 11% according to IndexArb.

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As a result, the Dow dogs overbought condition (where aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k each in those ten) shrank a bit again after December.

Actionable Conclusion (4): Dow Dogs Are Overbought

The overhang was $250 or 65% for February; slid to $243 or 62% in March; gapped to $295 or 81% for a new record in April; then broke the new annual record again in May at $311 or 87%. June saw the gap narrow to $286 or 77%. The July/August market set a new high for the gap at $329 or 85%. September shrank the gap to $279 or 67%. October expanded the chasm again to $323 or 82%. November-December constricted the gap somewhat to $271 or 70%. January narrowed the gap slightly to $267 or 63%.

This gap between high share price and low dividend per $1k invested shows an overbought condition. Meaning, these are low risk and low opportunity Dow dogs.

Compared to the DOW, the Contender ten for the year has progressively retreated in a pattern where aggregate dividend value of $1k investments in each steadily rose above the aggregate single share price.

[I invite you to sign on to my premium site, The Dividend Dog Catcher, to share my discussion about how the Dow (short of tossing out IBM) could return to a normal balance where dividends from 10 $1k investments can again exceed the aggregate single share price of those top ten stocks.]

If Dow prices can make a similar adjustment of about 30-35% they would again become attractive dividend buys! As it stands, the Dow has become an index of growth stocks as their dividends have been progressively devalued by the marketplace. As the Dow prices plunge, the resulting dividends will become more valuable.

Actionable Conclusion (5) Ten Contender Dogs Pursued 63.75% Average Upsides To January 2017

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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" metrics, analyst mean price target estimates were another tool used to dig out bargains.

Actionable Conclusions: Wall St. Analysts Augured (6) 32.88% Average Upside & (7) 33.29% Average Net Gain from Top 30 Dividend Contenders By January, 2017

Top thirty dogs from David Fish's Dividend Contenders list were graphed below as of January 22, 2016 as compared to analyst mean price target estimates for the same date in 2017.

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 2016.

Historic prices and actual dividends paid from $30,000 invested as $1k in each of the highest yielding stocks and the aggregate single share prices of those thirty stocks divided by 3 created data points for 2016. Projections based on estimated increases in dividend amounts from $1000 invested in the thirty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 3 created the 2017 data points green for price and blue for dividend.

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Analyst data reported by Yahoo finance projected a 24% lower dividend from $30K invested as $1k in each stock in this group while aggregate single share price was projected to increase 26% 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 had a better history of accurate estimates.

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 stock price movement opposite of market direction.

Actionable Conclusion (8): Analysts Alleged Ten Dividend Contender Dogs Would Net 42.4% to 145.98% By Late-January 2016

Five of ten top dividend yielding Contender dogs were among the ten gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy as graded by Wall St. wizards was 50% accurate.

Ten probable profit generating trades were revealed by Thomson/First Call in Yahoo Finance into 2017:

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Alliance Resource Partners was projected to net $1,459.81 based on a median target price estimate from five analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 6% less than the market as a whole.

Energy Transfer Equity LP was projected to net $1.071.38 based on dividends plus the lowest of annual price estimates from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 61% more than the market as a whole.

DCP Midstream Partners LP was projected to net $863.67 based on dividends plus median target price estimate from fourteen analysts less broker fees. The Beta number showed this estimate subject to volatility 65% more than the market as a whole.

Sunoco Logistics Partners LP (NYSE:SXL) was projected to net $801.86 based on dividends plus median target price estimate from sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 10% more than the market as a whole.

Genesis Energy LP (NYSE:GEL) was projected to net $709.29 based on dividends plus the median of annual price estimates from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 23% less than the market as a whole.

Williams Companies was projected to net $629.44 based on dividends plus the lowest target price estimate from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 23% more than the market as a whole.

Enterprise Products Partners (NYSE:EPD) was projected to net $534.22 based on a median target price estimate from twenty-three analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 5% less than the market as a whole.

Plains All American was projected to net $447.37 based on dividends plus the median of twenty-one analysts, less broker fees. The Beta number showed this estimate subject to volatility 28% more than the market as a whole.

ConocoPhillips (NYSE:COP) was projected to net $425.71 based on dividends plus the median of annual price estimates from twenty-two analysts less broker fees. The Beta number showed this estimate subject to volatility 3% more than the market as a whole.

Murphy Oil Corp. (NYSE:MUR) was projected to net $424 based on dividends plus median target price estimate from sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 180% opposed to the market as a whole.

The average net gain in dividend and price was 73.67% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 12% less than the market as a whole.

Dog Metrics Extracted Bargains

Yield (dividend / price) results from Yahoo.com and dripinvesting.org for Contender dividend stocks as of market closing prices November 25 did the ranking.

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As noted above, just one of nine Yahoo Finance market sectors were represented in the top ten contenders dog list selected by yield below: basic materials.

Actionable Conclusions: (1) 5 Lowest Priced of Top Ten Highest Yield Contender Dogs Promised 80.70% VS. (2) 60.31% Net Gains by All Ten by January 22, 2017

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$5000 invested as $1k in each of the five Lowest priced stocks in the top ten contenders dividend kennel by yield were alleged by analyst 1 year targets to deliver 33.81% more net gain than the same amount invested in all ten. The second lowest priced contender dividend dog, Alliance Resource Partners LP , was projected to deliver the best net gain of 145.98%.

Lowest priced five contenders dogs for January 22 were: Energy Transfer Equity LP ; Alliance Resource Partners LP. ; Alliance Holdings GP LP ; DCP Midstream Partners LP ; BHP Billiton plc , with prices ranging from $9.63 to $18.71.

Higher priced five contenders dogs for January 22 were: Williams Companies ; Plains All American Pipeline LP ; BHP Billiton Ltd. ; ONEOK Partners LP ; AmeriGas Partners LP , whose prices ranged from $19.74 to $36.46.

This distinction between five low priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed for beating the Dow.

The added scale of projected gains based on analyst targets contributed a unique element of "market sentiment" gauging upside potential. It provided a here and now equivalent of waiting a year to find out what might happen in the market. Its also the work analysts got paid big bucks to do.

Caution is advised, however, as analysts are historically 20% to 80% accurate on the direction of change and about 0% to 20% accurate on the degree of the change.

The stocks listed above were suggested only as reference points for a Contender dog stock investigation in late-January, 2015. These were not recommendations.

See my instablog for specific instructions about how to best use the dividend dog data featured in this article.--Fredrik Arnold

Gains/declines as reported do not factor-in any tax problems resulting from dividend, profit, or return of capital distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.

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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/sale 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.

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

Disclosure: I am/we are long CSCO, PFE, 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.