Basic Materials Dividend Dogs Get Crazy Yield, Upside, And Gain In February

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Includes: AHGP, CEQP, CLMT, ETP, EVEP, JPEP, NGL, OCIP, PER, SDLP, TROX, VNR, WPZ
by: Fredrik Arnold

Summary

Ten Basic Materials leader annual yields averaged 30.3% and retreated bearishly after January while Dow dogs mixed upward.

Yield by AHGP, OCIP, SDLP, PER, CEQP, TROX, NGLS, NGL, GST-PA, & GST-PB, ranged from 12.82% to 39.3% as of February 9.

Analyst 1yr. targets pegged 10 Basic Materials price upsides at 158.07% with net gains averaging 168.6% for ETP; CLMT; NGL; JPEP; CEQP; TROX; EVEP; VNR; WPZ; SDLP.

Thirty Basic Materials firms averaged 84.3% upsides and 73.9% net gain. Gains ranged from 54.68% to 160.97% .

Analysts of ten Basic Materials sector stocks by yield predicted 6.64% more net gain from $5k invested in the lowest priced five than from $5K put in all ten.

Basic Materials SML Dogs February Roundup

Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of February 9, 2016 for Small, Mid, & Large cap Basic Materials stocks. Small cap firms were valued at $200M(illion) to $2B(illion); Mid cap firms were worth $2B to $10B; Large caps were valued above $10B. Those yield results led to the actionable conclusions discussed below.

Fifty 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; (3) net gain results based on analyst 1 yr. target projections.

This article intended to reveal bargain stocks to buy and hold up to one 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 Measured Basic Materials Stocks by Yield

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Actionable Conclusion (1): O&G Midstream Firms Boast Top February Yield As Chem Dogs Persist in the Top Ten

Oil and/or gas (o&g) industries provided seven of the top ten basic materials stocks showing the biggest dividend yields for February. Two miners from second to the ninth slot.

Top dogs were two preferred shares in an independent oil and gas exploration firm, Gastar Exploration 8.625% Series B Preferred (GST-PB) [1], and Gastar Exploration 8.625% Series A Preferred (GST-PA) [2]. Third for February was last-month's top dog, a diversified refining, marketing, pipeline and storage firm, NGL Energy Partners L.P. (NYSE:NGL) [3]. Another pipeline and storage firm completed the top four, Targa Resources Partners L.P. [4].

The five slot was claimed by top yielding Chemical company, Tronox Limited (NYSE:TROX) [5].

Three more O&G firms placed sixth through eighth on the list: Sixth place was claimed by another pipeline and storage firm, Crestwood Equity Partners LP (NYSE:CEQP) [6]. The last independent O&G firm in the top ten was Sandridge Permian Trust (NYSE:PER) [7]. Only one driller showed up near the bottom of the BasMat list in eighth place: Seadrill Partners LLC (NYSE:SDLP) [8].

The second major chemical company placed ninth, OCI Partners LP (NYSE:OCIP) [9]. Finally, the lone non-metallic mineral miner placed tenth, Alliance Holdings Group (NASDAQ:AHGP) [10], to complete the top ten basic materials dogs by yield list of February 9.

Basic Materials Top Ten Price vs. Dividend Results Compared With Dogs of The Dow

Relative strengths of the top ten basic materials dogs graphed below by yield were plotted as of market close 2/9/2016 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.

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Actionable Conclusions: (2) Basic Materials Top Ten Retreated As (3) Dow Dogs Mixed Up Into February

Dividend from $10k invested as $1k in each of the basic material top ten dogs soared to enter February, as the aggregate single share price of the top ten plummeted. Dividend rose at a rate of 36.5% while total single share price dropped 17%. The February retreat was driven by stock prices plummeting as yields soared despite cuts in dividends by prudent energy firms.

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Meanwhile, Dow dogs mixed up as they showed higher annual dividend from $10k invested as $1K in each of the top ten Dow dogs, rising 8.4% after January. Meanwhile, aggregate single share price rose 1%. 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) increased.

Historically, the overhang was $256 or 65% as of March 6; gapped to $295 or 81% for a new annual record April 9; the gap extended to $321 or 90% May 1; swelled to $392 or 104% June 5, marking new 2014-15 yearly record gaps each time.

A July 1 price retreat narrowed the gap to $237 or 63%. However to begin August, IBMs high price and dividend pushed the gap to $343 or 89%. As September dawned, KO ascended and PFE was back in tenth while nearly all ten dogs dropped in price to temporarily shrink the gap to $273 or 67%. October saw prices rise and dividend fall to move the price over dividend chasm to $305 or 76%.

November 6 price action and top dog shuffle put the gap at $303 or 78%. As of December 4 the gap stood at $294 or 75%. Come January 8, prices of the ten Dow top dogs fell, and dividends rose, to push the overbought gap down to $272 or 71%. In February the gap narrowed to $246 or 59% triggered by Boeing replacing General Electric in the tenth slot.

The Dow Dogs remain overbought and overpriced. A 30% correction is overdue.

[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 have returned to a normal balance in one move in August where dividends from 10 $1k investments could again exceed the aggregate single share price of those top ten stocks.]

Wall Street Wizard Weights

One-year median 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 2016 out of 30 selected by yield. The number of analysts providing price estimates was noted after the name for each stock. Three to nine analysts were considered best for the most accurate mean target price estimate.

Actionable Conclusions: (5) Ten Basic Materials Dividend Dogs Cast Upsides of 106.49% to 257.14% per Analyst 1 yr. Targets

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Dog Metrics Measured Basic Materials Stocks 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" metrics, analyst mean price target estimates provided another tool to dig out bargains.

Actionable Conclusions: Wall St. Wonks Projected (6) Average 84.29% Upsides; (7) Average 73.9% Net Gains from Top 30 Basic Materials Dogs By February, 2017

Top thirty sector dogs were graphed below to show February 9, 2016 closing prices compared those projected by analyst mean price target estimates to 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 upsides to 2017.

Historic prices and actual dividends paid from $1000 invested in each of the thirty highest yielding stocks and the aggregate single share prices of those thirty stocks divided by 3 created the 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 dividends.

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Analysts as reported by Yahoo Finance projected a 37.2% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 74.2% in the coming year (February to February).

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 (8): Analysts Alleged 10 Basic Materials Sector Dogs Could Net 125.24% to 280.65% By February, 2017

Four of 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 40% accurate.

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

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Seadrill Partners LLC was projected to net $2,806.53 based on the low target price estimate from five analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 95% more than the market as a whole.

Williams Partners L.P. (NYSE:WPZ) was projected to net $2,426.46 based on estimated dividends plus mean target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 65% more than the market as a whole.

Vanguard Natural Resources (NASDAQ:VNR) was projected to net $1,728.72 based on the median of estimates from twelve analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 43% more than the market as a whole.

EV Energy Partners L.P. (NASDAQ:EVEP) was projected to net $1,556.53, based on dividends plus a median target price estimate from eight analysts less broker fees. The Beta number showed this estimate was subject to volatility 58% more than the market as a whole.

Tronox Limited was projected to net $1,472.45 based on the lowest target price estimate from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 206% more than the market as a whole.

Crestwood Equity Partners LP was projected to net $1,466.34 based on estimates from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 123% more than the market as a whole.

JP Energy Partners LP (NYSE:JPEP) was projected to net $1,452.12, based on dividend plus median target price estimates from five analysts less broker fees. A Beta number was not available for JPEP.

NGL Energy Partners L.P. was projected to net $1,402.96 based on dividends plus the median target price estimate from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 25% more than the market as a whole.

Calumet Specialty Products L.P. (NASDAQ:CLMT) was projected to net $1,291.73 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 42% more than the market as a whole.

Energy Transfer Partners (NYSE:ETP) was projected to net $1,252.37 based on a median target price estimate from fourteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 1% more than the market as a whole.

Average net gain in dividend and price was 168.52% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to volatility 59% greater than the market as a whole.

Dog Metrics Extracted More Bargains From Five Lowest Priced Highest Yield Dogs

Ten small, mid, and large cap basic materials equities were culled by yield from 50 common stock choices from here. Yield (dividend / price) results verified by Yahoo Finance did the ranking.

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Actionable Conclusions: (9) Analysts Project 5 Lowest Priced of Ten Highest Yield To Fetch 104.74% VS. (10) 98.22% Net Gains From All Ten as of February 9, 2017

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$5000 invested as $1k in each of the five Lowest priced stocks in the top ten basic materials dividend kennel by yield were predicted by analyst 1 year targets to deliver 6.64% more net gain than $5,000 invested as $500 in each of the top ten. The very lowest priced basic materials dividend dog, Seadrill Partners LLC , was projected to deliver the best net gain of 280.65%.

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Lowest priced five basic materials dividend dogs for February 9 were: Seadrill Partners LLC; Sandridge Permian Trust; Tronox Limited; Gastar Exploration 8.625% Series A (Preferred) (GST-PA); OCI Partners LPP, with prices ranging from $1.96 to $6.71.

Higher priced five basic materials dividend dogs for February 9 were: Gastar Exploration 8.625% Series B (Preferred) (GST-PB); NGL Energy Partners L.P.; Crestwood Equity Partners LP; Targa Resources Partners L.P.; Alliance Holdings Group, whose prices ranged from $6.84 to $15.79.

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. It works here too, for the Basic Materials top sector dogs.

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.

A 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.

Stocks listed above were suggested only as decent starting points for a small, mid, and large cap basic materials equities dog dividend stock investment research process in early-February, 2016. These were not recommendations.

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

Gains/declines as reported did 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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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.dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.

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

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.