How Western Digital Became The Technology April Favorite Dividend Dog

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Includes: BRKS, CCI, CMTL, CNSL, CTL, FTR, IQNT, ISIL, LXK, NTL, PHI, QCOM, STM, STX, VOD, WDC, WIN
by: Fredrik Arnold

Summary

Top 10 Technology dogs averaged 6.66% yield as of April 5. 30 equities ranged in yield from 3.59% to 8.03%.

Top yielders, CMTL, NTL, VOD, PHI, CNSL, CTL, STM, STX, WIN, and FTR, retreated bearishly through March while 10 Dow dogs stayed bullish.

10 Technology stocks, led by WDC, saw projected price upsides of 9.69% to 47.29%. Four showed downsides averaging 5.77%. 30 Technology firms showed upsides averaging 7.9% based on analyst targets.

Top 30 gains averaged 11.04% per targets, dividends, less fees. ERIC, CCI, FTR, VOD, ISIL, STM, CYL, BRKS, CHL, and IQNT boasted 13.17% to 48.83% gains. Four alleged losses.

Analysts reckoned $5k invested in the lowest-priced five of 10 top yield technology sector dividend stocks showed 42.65% greater returns than from $5k invested in all 10.

Technology SML Dogs Of April

Yield (dividend/price) results from here verified by Yahoo Finance were calculated as of April 5, 2016 for Small-, Mid-, and Large-cap Technology 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 three 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 one-year 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 Arranged Technology Stocks By Yield

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Actionable Conclusion (1): Telecommunication Firms Attain Top Tech Sector Yields

10 stocks that showed the biggest dividend yields through March, per Yahoo Finance data, represented five technology sector industries: telecom services domestic; data storage; semiconductor-broad line; telecom services foreign; and communication equipment.

Tops by yield were two of four telecom service-domestic firms: Frontier Communications (NASDAQ:FTR) [1], and Windstream (NASDAQ:WIN) [2]. The other domestic telecom firms placed fifth and sixth, CenturyLink, Inc. (NYSE:CTL) [5] and Consolidated Communications Holdings (NASDAQ:CNSL) [6].

In third place was the lone Data Storage representative, Seagate Technology (NASDAQ:STX) [3]. The one semiconductor-broad line firm placed fourth: STMicroelectronics NV (NYSE:STM) [4].

Three telecom service foreign firms placed seventh, through ninth: Philippine Long Distance Telephone Co. (NYSE:PHI) [7], Vodafone Group (NASDAQ:VOD) [8], and Nortel Inversora S.A. (NYSE:NTL) [9].

Finally, Comtech Telecommunications (NASDAQ:CMTL) [10] made the list for communication equipment and completed the April technology top 10 dog list by yield.

Technology Sector Dividend Vs. Price Results Contrasted With Dogs Of The Dow

Relative strengths of the top 10 technology dogs graphed below by yield 4/5/2016 run contrary to those of the Dow. Projected annual dividend history from $10,000 invested as $1k in each of the 10 highest-yielding stocks and the total single share prices of those 10 stocks created the data points shown in green for price and blue for dividends.

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Actionable Conclusions: (2) Technology Dogs Retreated As (3) Dow Dogs Stayed Bullish!

As of April 5, dividend from $10k invested as $1k in each of the top 10 technology stocks increased as aggregate single share price of those 10 stumbled. Price dropped 8% while dividend jumped up 2% to sound the retreat.

Dow dogs charged through March and into April. Projected annual dividend from $10k invested as $1k in each of the top 10 fell 1.3%. At the same time, price rose 2% to confirm the bullish tone.

The Dow dogs' overbought condition (in which aggregate single share price of the 10 exceeded projected annual dividend from $1k invested in each of the 10) expanded toward its annual widest.

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Actionable Conclusion (4): Dow Dogs Expand Overbought Zone

The overhang was $320 or 90% to begin May 2015; soared to the new record $406 or 112% in June.

The Dow bubble deflated as DuPont (NYSE:DD) replaced IBM (NYSE:IBM) in the 10th slot of the top 10 for July to peg the gap at $269 or 71%, then inflated again as IBM replaced Pfizer (NYSE:PFE) 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 Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM) pushed the gap to $334 or 85%.

November changed out McDonald's (NYSE:MCD) for Wal-Mart (NYSE:WMT), and GE (NYSE:GE) for Coca-Cola (NYSE: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 10 Dow top dogs fell, and dividends rose, as Boeing (NYSE:BA) replaced General Electric to reduce the overbought gap to $215 or 53%. February moves put the gap at $230 or 55%. March extended the move as high price Procter & Gamble (NYSE:PG) replaced Intel (NASDAQ:INTC) in the 10th slot moving the bar to $372 or 95%. April saw higher prices return to XOM and CVX and the gap extended to $392 or 102%.

This gap between high share price and low dividend per $1k invested defines the Dow overbought condition. Meaning these are low-risk and low-opportunity Dow dog stocks. The Dow top 10 average price per dollar of annual dividend is now $26.12 for April, which is up 1.7% from its $25.68 in March.

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In contrast to the Dow, technology dog charts show higher risk but also higher gain potential than the pups of the Dow. The Technology top 10 average price per dollar of annual dividend is down to $15.72, a bearish retreat of 1.06% from March's $15.89.

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Wall Street Wizards At Work

One-year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment revealed 10 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 usually provided the most accurate mean target price estimates.

Actionable Conclusions: Analysts Allege (5) 24.34% Average Price Upsides For 10 Technology Dogs, And (6) 8.87% Average Downsides For Four Come April 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 provided another tool to dig out bargains.

Actionable Conclusions: Wall St. Wizards Augured (7) A 7.9% Average Upside; (8) A 11.04% Average One-Year Net Gain From Top 30 April Technology Dogs

Tech sector dogs were graphed below to show relative strengths by dividend and price as of April 5, 2016, and those projected by analyst mean price target estimates to the same date in 2017.

A hypothetical $1,000 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 median target price was used to gauge the upside to 2017.

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

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Analysts reported by Yahoo Finance projected a 5.4% lower dividend from $10k invested in this group while aggregate single share price was projected to increase by 6.6% 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 proven to provide more accurate projected estimates. Estimates provided by one analyst were not applied (n/a).

A beta (risk) ranking for each stock was shown 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 to market direction.

Actionable Conclusion (9): Wall St. Wizards Expect 10 Technology Dogs To Net 11.8% To 49.82% Gains By April 2017

Three of the 10 top dividend-yielding technology dogs were verified as being among the 10 top net gainers for the coming year based on analyst one-year target prices. So this period the dog strategy for technology stocks as graded by Wall St. wizards was 30% accurate.

10 probable profit-generating trades were revealed by Thomson/First Call in Yahoo Finance for April 2017:

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Western Digital (NASDAQ:WDC) was projected to net $498.24, based on a median target price estimate from 25 analysts, combined with projected annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 23% more than the market as a whole.

Inteliquent, Inc. (NASDAQ:IQNT) was projected to net $452.17, based on dividends, plus a median target price estimate from three analysts, less broker fees. The Beta number showed this estimate subject to volatility 27% more than the market as a whole.

STMicroelectronics was projected to net $392.21, based on estimates from five analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 55% less than the market as a whole.

Brooks Automation, Inc. (NASDAQ:BRKS) was projected to net $302.80, based on dividends, plus a median target price estimate by five analysts, less broker fees. The Beta number showed this estimate subject to volatility 47% less than the market as a whole.

Vodafone Group was projected to net $243.57, based on dividends, plus a median target price estimate from two analysts, less broker fees. The Beta number showed this estimate subject to volatility 27% less than the market as a whole.

Cypress Semiconductor (NASDAQ:CY) was projected to net $214.04, based on dividends, plus a mean target price estimate from 13 analysts, less broker fees. The Beta number showed this estimate subject to volatility 95% more than the market as a whole.

Frontier Communications was projected to net $207.53, based on estimates from 14 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.

Intersil Corporation (NASDAQ:ISIL) was projected to net $170.77, based on dividends, plus the median of annual price estimates from nine analysts, less broker fees. The Beta number showed this estimate subject to volatility 40% more than the market as a whole.

Qualcomm, Inc. (NASDAQ:QCOM) was projected to net $140.77, based on estimated dividends, plus median target price estimate from 29 analysts, less broker fees. The Beta number showed this estimate subject to volatility 29% more than the market as a whole.

Crown Castle International (NYSE:CCI) was projected to net $118.02, based on estimates from 18 analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 67% less than the market as a whole.

Average net gain in dividend and price was 27.4% on $10k invested as $1k in each of these 10 dogs. This gain estimate was subject to average volatility 1% less than the market as a whole.

Actionable Conclusion (10): (Bear Alert) Analysts Predicted Four Technology Dogs Would Average A Net Loss Of 5.77% By April 2017

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

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Windstream was projected to lose $29.13, based on dividend and a median target price estimate from 10 analysts, including $20 of broker fees. The Beta number showed this estimate subject to volatility 23% opposite the market as a whole.

Lexmark International, Inc. (NYSE:LXK) was projected to lose $38.11, based on dividend and a median target price estimate from five analysts, including $20 of broker fees. The Beta number showed this estimate subject to volatility 49% more than the market as a whole.

CenturyLink, Inc. was projected to lose $49.28, based on dividend and a median target price estimate from 15 analysts, including $20 of broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole.

Consolidated Communications Holdings was projected to lose $56.50, based on dividend and a median target price estimate from five analysts, including $20 of broker fees. The Beta number showed this estimate subject to volatility 12% less than the market as a whole.

The average net loss in dividend and price with broker fees included was 5.77% on $4k invested as $1k in each of these four dogs. The beta number showed this estimate subject to volatility 3% more than the market as a whole.

Dog Metrics Found More Bargains From Five Lowest-Priced Highest-Yield Technology Stocks

10 monthly pay stock equities were culled by yield from here. Yield (dividend/price) results verified by Yahoo Finance did the ranking.

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As noted above, 10 stocks that showed the biggest dividend yields after March, per Yahoo Finance data, represented five technology sector industries: telecom services domestic; data storage; semiconductor-broad line; telecom services foreign; and communication equipment.

Actionable Conclusions: (11) Analysts Assert Five Lowest-Priced Of 10 Highest-Yield Technology Dividend Dogs Project 13.59% Vs. (12) 9.52% Net Gains By All 10 As Of April 5, 2017

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$5,000 invested as $1k in each of the five lowest-priced stocks in the top 10 technological dividend kennel by yield were predicted by analyst one-year targets to deliver 42.65% more net gain than $5,000 invested as $.5k in each of all 10. The second lowest priced, STMicroelectronics, was projected to deliver the best net gain of 39.22%.

Lowest-priced five technology dividend dogs for April 5 were: Frontier Communications; STMicroelectronics; Windstream; Nortel Inversora S.A.; and Comtech Telecommunications, with prices ranging from $5.23 to $22.58.

Higher-priced five technology dividend dogs for April 5 were: Consolidated Communications Holdings; Vodafone Group; CenturyLink; Seagate Technology; and Philippine Long Distance Telephone Co., whose prices ranged from $24.44 to $40.91.

This distinction between five low-priced dividend dogs and the general field of 10 reflects the "basic method" Michael B. O'Higgins employed for beating the Dow. The same technique, you now see, can also be used to find the more rewarding dogs in the Technology sector.

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. It's 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 the change and about 0% to 20% accurate on the degree of the change.

Net gain and loss 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.

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 possible starting points for your Technology dog dividend stock purchase/sale research process. These were not recommendations.

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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 indexarb.com; dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.

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

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.