Williams Partners Tops Basic Materials Dividend Dogs By Upside And Gains For April

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Includes: AHGP, ARCX, ARLP, CLMT, CMLP, ETE, MEMP, MEP, NGL, OCIP, PER, RRMS, SDLP, SRLP, TROX, WMB, WPZ
by: Fredrik Arnold

Summary

Annual yields of ten Basic Materials leaders averaged 23.6% and charged bullishly after March to mimic Dow dogs.

Yield by ARCX, RRMS, OCIP, ARLP, CLMT, AHGP, SDLP,MEP, PER, & NGL ranged from 17.5% to 30.9% as of April 12.

Analyst 1yr. targets put average Basic Materials price upsides at 35.22% with net gains at 50.49% for OCIP; SRLP; TROX; WMB; ARCX; ETE; ARLP; SDLP; CLMT; WPZ. Loser was MMEP.

Thirty Basic Materials firms averaged 10.75% upsides and 26.22% net gain. Top ten gains ranged from 22.19% to 99.85%.

Analysts of ten Basic Materials sector stocks by yield predicted 15.09% LESS net gain from $5k invested in the lowest priced five than from $5K put in all ten.

Basic Materials SML Dogs For April

Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of April 12, 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 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 Tracked Basic Materials Stocks by Yield

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Actionable Conclusion (1): O&G Firms Boast Top Yields As Chem. & Mining Dogs Persist in the April Top Ten

The oil and/or gas (o&g) industry sourced seven of the top ten basic materials stocks showing the biggest dividend yields again for April. One miner placed fifth, another was seventh, and the chemical firm took the eighth slot.

Top dog was an oil and gas refiner and marketer, NGL Energy Partners L.P. (NYSE:NGL) [1]. Two independent o&g firms placed second and third, Sandridge Permian Trust (NYSE:PER) [2], and Midcoast Energy Partners LP (NYSE:MEP) [3].

Fourth was a lone o&g driller, Seadrill Partners LLC (NYSE:SDLP) [4]. The lone non-metallic mineral miner placed fifth, Alliance Holdings Group (NASDAQ:AHGP) [5].

Another o&g refiner and marketer, Calumet Specialty Products L.P. (NASDAQ:CLMT) placed sixth [6], and the coal company placed seventh, Alliance Resource Partners L.P. (NASDAQ:ARLP) [7].

The major chemical company placed eighth, OCI Partners LP (NYSE:OCIP) [8], and finally, an o&g pipeline firm placed tenth, Arc Logistics Partners LP (NYSE:ARCX) [10] to complete the top ten basic materials dogs by yield list as of April 12.

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

Relative strengths of the top ten basic materials dogs graphed below by yield were plotted as of market close 4/12/2016 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 Charged Bullishly As (3) Dow Dogs Did Too

Dividend from $10k invested as $1k in each of the basic material top ten dogs fell into April, while the aggregate single share price of the top ten increased. Dividend dropped at a rate of 18% while total single share price rose 13%.

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Meanwhile, Dow dogs also charged as they showed lower annual dividend from $10k invested as $1K in each of the top ten, falling 3.75% after March. Meanwhile, aggregate single share price rose 9%. 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 a record $421 or 117% in May; then shrank to $392 or 104% June 5. 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 $305 or 79%. As of December 4 the gap stood at $302 or 78%. Come January 8, prices of the ten Dow top dogs fell, and dividends rose, to push the overbought gap down to $224 or 56%. In February the gap grew to $246 or 59%. The March charge put the gap up to $293 or 73%. In April JPM moved into the top ten to assist in widening the gap to $370 or 96%.

The Dow Dogs remain overbought and overpriced. The Dow top ten average increased to $26.12.

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Compared to the Dow dogs, the Basic Materials top ten, while volatile, are far from overbought, narrowing their "normal" pattern of dividends above price.

In marked contrast to the Dow, Basic Materials Dog top ten average price per dollar of annual dividend increased over $1 but remained at a low $4.45 as of April 12, that is more than 1/6th the price of an annual dollar of Dow dividends.

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Wall Street Wizard Weights Find Upside/Downside Dogs For April

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: (4) Ten Basic Materials Dividend Dogs Showed Upsides of 6.08% to 87.39% per Analyst 1 yr. Targets & (5) One Cast A 35.22% Downside

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Dog Metrics Gauged 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. Wizards Projected (6) Average 10.75% Upsides; (7) Average 26.22% Net Gains from Top 30 Basic Materials Dogs By April 2017

Top thirty sector dogs were graphed below to show April 12, 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 7% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 8.3% in the coming year (April to April).

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 (7): Analysts Advised 10 Basic Materials Sector Dogs Could Net 22.2% to 99.9% By April, 2017

Five of ten top 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 analysts graded the dog strategy as 50% accurate.

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

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Williams Partners L.P. (NYSE:WPZ) was projected to net $998.74 based on estimated dividends plus mean target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 54% more than the market as a whole.

Calumet Specialty Products L.P. was projected to net $830.25 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 10% more than the market as a whole.

Seadrill Partners LLC was projected to net $621.419 based on the low target price estimate from four analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 139% more than the market as a whole.

Alliance Resource Partners was projected to net $594.66 based on the median of estimates from three analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 17% less than the market as a whole.

Energy Transfer Equities (NYSE:ETE) was projected to net $566.06 based on a median target price estimate from six analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 90% more than the market as a whole.

Arc Logistics Partners was projected to net $397.50, based on dividends plus a median target price estimate from six analysts less broker fees. A Beta number was not available for ARCX.

Williams Companies (NYSE:WMB) was projected to net $310.32, based on dividend plus median target price estimates from seven analysts less broker fees. The Beta number showed this estimate was subject to volatility 45% more than the market as a whole.

Tronox Limited (NYSE:TROX) was projected to net $265.93 based on the lowest target price estimate from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 214% more than the market as a whole.

Sprague Resources LP (NYSE:SRLP) was projected to net $241.94 based on estimates from four analysts plus dividends less broker fees. A Beta number was not available for SRLP.

OCI Partners LP was projected to net $221.87 based on dividends plus the median target price estimate from three analysts less broker fees. A Beta number was not available for OCIP.

Average net gain in dividend and price was 50.48% The average Beta number showed these estimates subject to volatility 46% greater than the market as a whole.

Actionable Conclusion (8): (Bear Alert) Analysts Predicted A Basic Materials Dog Would Show A Net Loss of 12% By April 2017

A probable losing trade revealed by Thomson/First Call in Yahoo Finance in 2017 was:

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Memorial Production Partners LP (NASDAQ:MEMP) was projected to lose $120.42 based on dividend and a median target price estimate from eight analysts including $20 of broker fees (which the dividend more than covered). The Beta number showed this estimate subject to volatility 47% more than the market as a whole.

Dog Metrics Failed to Find More Bargains From Five Lowest Priced Highest Yield Basic Materials 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 32.99% VS. (10) 38.85% Net Gains From All Ten as of April 12, 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 15.09% LESS net gain than $5,000 invested as $500 in each of the top ten. The seventh lowest priced basic materials dividend dog, Calumet Specialty Products L.P.(CLMP), was projected to deliver the best net gain of 83.02%.

Lowest priced five basic materials dividend dogs for April 12 were: Sandridge Permian Trust; Seadrill Partners LLC; Midcoast Energy Partners LP; OCI Partners LPP; NGL Energy Partners L.P., with prices ranging from $2.60 to $8.28.

Higher priced five basic materials dividend dogs for April 12 were: Arc Logistics Partners LP; Calumet Specialty Products L.P. (NYSE:CMLP); Alliance Resource Partners L.P.; Rose Rock Midstream L.P. (NYSE:RRMS); Alliance Holdings Group, whose prices ranged from $10.06 to $15.66

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 sometimes works here too, for the Basic Materials top sector dogs. Not this time.

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 mid-April, 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 dividend.com; finance.yahoo.com; analyst mean target price 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.