Utility Dog TerraForm Holds Top Spot In April

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Includes: ABY, BEP, BIP, ED, HE, JE, NRG, NWE, NWN, NYLD, OKE, PEGI, SJI, SO, SPH, TERP, WGP
by: Fredrik Arnold

Summary

Top 10 Utilities leaders showed annual yields averaging 8.53% April 1. TERP led with 14.24%. The Utilities and Dow dogs continued charging through March.

Thirty top Utilities stocks ranged in yield from 3.48%. Highest yields were cast by BIP, BEP, NYLD, NWE, PEGI, JE, OKE, ABY, SPH, & TERP.

Analyst 1yr. targets revealed price upsides averaging 18.7% and net gains averaging 24.47% for top ten. Thirty Utilities averaged 4.26% upsides and 8.71% net gains as of April 1.

Analysts forecast gains of 7.19% to 49.68% for SJI, WGP, SPH, BIP, JE, ABY, NRG, NYLD, PEGI, & TERP. They cast 3.3% to 9.9% losses for SO; HI; ED; NWN.

$5k invested in the lowest priced five of ten top yield utilities dividend dogs showed 62.96% more net gain than from $5k put in all ten.

The Utilities SML Dog Lineup For April

Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of April 1, 2015 for Small, Mid, & Large cap Utilities 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 three 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 is 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 Metered Utilities Stocks by Yield

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Actionable Conclusion (1) Diversified Equal Electric Utilities In Yield

Of ten stocks with the biggest utilities sector dividend yields after February, per Yahoo Finance, 4 represented the diversified group; 2 gas; 4 electric.

Tops by yield was one the four diversified firms, TerraForm Power Inc. (NASDAQ:TERP) [1]. The four other diversified firms placed fifth, sixth, and ninth: Just Energy Group, Inc. (NYSE:JE) [5]; Pattern Energy Group Inc (NASDAQ:PEGI) [6]; Brookfield Renewable Energy Partners LP (NYSE:BEP) [9].

The two gas utilities placed second, and fourth, Suburban Propane Partners (NYSE:SPH) [2], ONEOK Inc. (NYSE:OKE) [4].

Four electric utilities placed third, seventh, eighth, and tenth: Abengoa Yield PLC (NASDAQ:ABY) [3], NorthWestern Corp. (NYSE:NWE) [7], NRG Yield Inc. (NYSE:NYLD) [8], and Brookfield Infrastructure Partners L.P. (NYSE:BIP) [10], to complete the April utilities top ten list.

Utility Dog Dividend & Price Results Compared With Dow Dogs

Graphs below per market close 4/1/16 compared relative strengths of the top ten utilities sector dogs by yield with those of the Dow industrials index. Annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks along with the total single share price of those ten stocks made the data points shown in green for price and blue for dividends.

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Actionable Conclusions: (2) Utilities Charged And (3) Dow Dogs Did Too

After 3/15/16 dividend from $10k invested as $1k in each of the top ten utilities stocks continued to sink earthward 3% while aggregate single share increased 15.5% to show the bullish trend.

Dow dogs charged as dividend dropped and price soared to End March. Projected annual dividend from $10k invested as $1K in each of the top ten declined 2%. At the same time, aggregate single share price increased 2.75% to affirm the bullish move.

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) grew.

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Actionable Conclusion (4): Dow Dogs Increasingly Overbought

The overhang was $320 or 90% to begin May; soared to the new record $406 or 112% in June.

The Dow bubble deflated as Dupont replaced IBM in the ten slot of the top ten for July to peg the gap at $269 or 71%, then inflated again as IBM replaced Pfizer to widen the gap to $331 or 85% for August. September brought some sanity back to the runaway Dow when the gap stood at $279 or 67%. October increases in price by CVX and XOM pushed the gap to $334 or 85%.

November changed out MCD for WMT, and GE for KO. The resulting price over dividend gap went to $303 or 78%. As of December 4 the gap stood at $294 or 75%. Come January 12, prices of the ten Dow top dogs fell, and dividends rose, as Boeing replaced General Electric to reduce the overbought gap to $215 or 53%. February moves put the gap at $230 or 55% February 16. March hyped the move to $370 or 94% April saw high priced P&G move low priced Intel out of tenth place to expand the gap to $400 or 104%%.

This gap between high share price and low dividend per $1k invested defines the Dow over-bought condition. Meaning these are low risk and low opportunity Dow dog stocks. The Dow top ten average price per dollar of annual dividend is $26.33.

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Conversely, the utilities dog chart shows them as increasingly higher in risk but also potentially as higher gain pups than those of the Dow. The utility top ten average price per dollar of annual dividend as of April 1 was $12.59.

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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 2017 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 have proved to provide the most accurate median target price estimates.

Actionable Conclusion (5) Ten Utilities Dividend Dogs Showed April Upsides of 5.49% to 37.33% While (6) Four Downcast 7.16% to 16.47%

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To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" measure 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. Wizards Predict Average (7) 4.26% Upsides & (8) 8.72% Net Gains from Top 30 Utilities Dogs By April, 2017

Top thirty dogs from the utilities sector were graphed below to show relative strengths by dividend and price as of April 1, 2016 and 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 price upsides and net gains including dividends less broker fees as of 2017.

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 twenty stocks divided by 3 created data points for 2016. Projections based on estimated 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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A 5.9% lower dividend was projected from $10K invested in this group as aggregate single share price was predicted to increase by 0.17% 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 have historically provided more accurate projection estimates. Estimates from only one analyst were not applied (n/a).

A beta (risk) ranking for each 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 market direction.

Actionable Conclusion (9): Wall St. Wizards Augured Ten Utilities Dogs Should Net 7.2% to 49.57% by April 2017

Seven of ten top dividend yielding utilities dogs were verified as being among the ten net gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy for this sector as graded by Wall St. wizards was 70% accurate.

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

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TerraForm Power Inc. was projected to net $495.77 based on the median price estimate from eight analysts plus dividends less broker fees. A Beta number was not available for TERP.

Pattern Energy Group Inc was projected to net $412.74, based on dividend plus median target price estimates from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 22% more than the market as a whole.

NRG Yield Inc was projected to net $324.42 based on estimates from fourteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 2% more than the market as a whole.

NRG Energy Inc (NYSE:NRG) was projected to net $239.20 based on estimates from fourteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 10% less than the market as a whole.

Abengoa Yield PLC was projected to net $215.16 based on dividends plus a median target price estimate from six analysts less broker fees. A Beta number was not available for ABY.

Just Energy Group, Inc. was projected to net $190.53 based on dividends plus a median target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 24% more than the market as a whole.

Brookfield Infrastructure Partners L.P. was projected to net $169.49 based on dividends plus the median target price estimate from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 14% more than the market as a whole.

Suburban Propane L.P. was projected to net $169.49 based on dividends plus the median target price estimate from sixteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 34% less than the market as a whole.

Western Gas Equity (NYSE:WGP) was projected to net $159.19 based on estimates from sixteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 54% more than the market as a whole.

South Jersey Industries (NYSE:SJI) was projected to net $71.98 based on estimates from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 47% less than the market as a whole.

The average net gain in dividend and price was 24.47% on $10k invested as $1k in each of these ten utilities dogs. This gain estimate was subject to average volatility 3% more than the market as a whole.

Actionable Conclusion (10): (Bear Alerts) Analysts Predicted Four Utility Dogs To Have Net Losses of 4.96% to 14.99% By April, 2017

Four probable losing trades revealed by Thomson/First Call in Yahoo Finance by 2017 were:

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Southern Company (NYSE:SO) was projected to lose $49.56 based on dividend and a median target price estimate from fourteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 97% less than the market as a whole.

Hawaiian Electric Industries (NYSE:HE) was projected to lose $83.95 based on dividend and a median target price estimate from two analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 68% less than the market as a whole.

Consolidated Edison (NYSE:ED) was projected to lose $114.95 based on dividend and a median target price estimate from thirteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 2% opposite the market as a whole.

Northwest Natural Gas (NYSE:NWN) was projected to lose $149.91 based on dividend and a median target price estimate from two analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 68% less than the market as a whole.

Average net loss in dividend and price was 9.96% on $4k invested as $1k in each of these four utilities dogs. This loss estimate was subject to average volatility 84% less than the market as a whole.

A Graphic Comparison of Utility Price Histories For Contrarians

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Past year upside price performance for these four Utility "losers" is in mighty contrast to the marked downside price history for this month's analysts upside utility star stock, TERP.

Dog Metrics Extracted Fewer Bargains From Five Lowest Priced Highest Yield Utility Dogs

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

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Actionable Conclusions: Analysts Assert 5 Lowest Priced of Ten Highest Yield Utilities Dividend Dogs (11) Generate 32.77% VS. (12) 20.11% Net Gains by All Ten by April 1, 2017

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$5000 invested as $1k in each of the five Lowest priced stocks of the top ten utilities dividend kennel by yield were predicted by analyst 1 year targets to deliver 62.96% more net gain than $5,000 invested as $.5k in all ten. The second lowest priced utilities dividend dog, TerraForm Power Inc , was projected to deliver the most net gain of 49.58%.

UTES/10 (3) 10 UTESBYPR APR/16

Lowest priced five utilities dividend dogs for April 1 were: Just Energy Group, Inc.; TerraForm Power Inc.; NRG Yield Inc; Abengoa Yield PLC; Pattern Energy Group Inc, with prices ranging from $6.08 to $18.51.

Higher priced five utilities dividend dogs for April 1 were: ONEOK Inc.; Suburban Propane L.P.; Brookfield Renewable Energy Partners LP; NorthWestern Corp.; Brookfield Infrastructure Partners L.P., whose prices ranged from $28.73 to $41.85.

This distinction between five low priced dividend dogs and the general field of ten reflects the rare miss in the "basic method" Michael B. O'Higgins employed for beating the Dow. The same technique has been used to find the more rewarding dogs in the Utilities kennel.

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.

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.

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

Stocks listed above were suggested only as reference points for a small, mid, and large cap utility equities dividend stocks as of March, 2016. These were not recommendations.

Three of these utilities sector dividend pups qualify as valuable catches! Check out the now 33 Dogs of the Week found on The Dividend Dog Catcher premium site. Click here for more information or to subscribe.

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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 dividend.com; Yahoo Finance; analyst mean target price by Thomson/First Call via 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.