Challenger Dogs Chase Basic Materials And Abandon Financials In April

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Includes: AHT, AMID, APLP, CLMS, CLNY, EEP, ENLC, ENLK, GMLP, MFIN, MMLP, NGL, STWD, SUN, TCAP, TLLP, TRGP, WPZ
by: Fredrik Arnold

Summary

Ten Challenger dogs by yield averaged 17.81% as of April 8. They were TAXI, TRGP, ENLK, EEP, GMLP, WPZ, MMLP, APLP, AMID, and NGL, tops. Eight basic materials were listed.

Dividend Dog Challengers (with 5 to 9 years of regular dividend increases) ranged in yield from 5.15% to over 32% from 50 listed.

Top ten Challenger dogs retreated while Dow dogs charged after March. Wall Street analyst 1yr. targets forecast average 12.38% upside and 19.84% net gain for thirty (30) dividend Challengers.

Estimated 23% to 114% 1-year gains were cast for ENLK, EEP, STWD, TAXI, AHT, GMLP, SUN, CLNY TLLP, and WPZ. Two losers slumped 8% to 11%, ENLC, & CLMS.

Ten Top Challenger dividend dogs ranked by yield projected 28.56% LESS gain from $5k invested in the lowest priced five than from the same investment in all ten.

April Challenger Dogs

Yield (dividend/price) results from David Fish's Dividend Challengers Index showed the top ten members resided in just three of nine business sectors: basic materials (8), services (1), and financials (1). Those ten stocks posted yields averaging 17.81%.

Top Challenger dog selections for April were reviewed, step by step, below to provide actionable conclusions by yield, target price upsides, and net gains.

Actionable Conclusion (1) 10 Top Dividend Challenger Dogs Made 11% to 32.4% Yields as of April 8

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; NASDAQ 100; Champions; Contenders; Challengers; CCC Combined; and Global. Bonus reports cover Bad Boy AllStars, and Sector Leaders.

Fifty For The Show

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. Including analyst price upside estimates in the analysis expanded the stock universe to include popular growth equities, as desired.

Dog Metrics Classified 50 Leading Challenger Dogs by Yield

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David Fish's March 31 Challengers list contained stocks distinguished by having paid increasing dividends for 5 to 9 straight years. These were ranked by yield as of April 8 closing prices to reveal the top ten.

Top yield dog for April, NGL Energy Partners LP (NYSE:NGL) [1], was the best of eight basic materials companies ranking in the top ten by yield.

The other basic materials firms took all slots but six, and ten which one service sector, and one financial representative claimed: American Midstream Partners LP (NYSE:AMID) [2]; Archrock Partners LP (NASDAQ:APLP) [3]; Martin Midstream Partners LP (NASDAQ:MMLP) [4]; Williams Partners LP (NYSE:WPZ) [5]; Enbridge Energy Partners LP EEP) [7]; EnLink Midstream Partners LP (NYSE:ENLK) [8]; Targa Resources Corp. (NYSE:TRGP) [9].

One service firm captured the sixth slot on the list, Golar LNG Partners LP (NASDAQ:GMLP) [6], and the lone financial took tenth, Medallion Financial Corp. (TAXI) [10], to complete the ten April Challengers top yield dog list.

Challenger Dividend vs. Price Results Compared With Dow Dogs

Periodic strength of ten top Challenger dogs by yield was graphed below as of market closing prices through 4/8/2016 and matched 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 price of those ten stocks created the data points shown in green for price and blue for dividend.

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Actionable Conclusion (2): Challengers & Dow Dogs Retreated After March

Challengers dividend from $10k invested as $1k in each dog increased. Aggregate single share price for the ten fell after March to signal the retreating bearish action. Challengers top ten dog dividend grew 1.3% while price dropped 6.2%. The Challengers were far removed from overbought status as they slightly enlarged their gap of dividend over price. Between March 22 and April 8, dividend from $10k invested in the top ten Challengers grew from 989% to 1075% higher than the aggregated single share price of those stocks.

The Dow dog charge showed as aggregate single share price for those ten jumped 10.8% between March 22, and April 8, while annual dividend from $10k invested as $1K in each of the top ten declined 4.5%, 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) grew again after March.

Actionable Conclusion (3): Dow Dogs Are Overbought

The overhang broke the annual record in May at $421 or 117%. June saw the gap narrow to $392 or 106%. The July market dropped the gap to $237 or 63%. Through August and September the gap rose to $273 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 $246 or 57%. In February when $30 Intel with its dividend dollar replaced Procter & Gamble's $75 price and $2.80 dividend, the gap of Dow price over dividend grew to $265 or 65%. But P&G reclaimed slot ten in March to join big dogs IBM and Boeing to put the gap to $309 or 78%. In April JPM joined the top ten and helped push the gap to $394 or 102%.

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. The Dow top ten average price per dollar of annual dividend was $26.18.

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Compared to the Dow, the Challenger top ten after May 2015 progressively retreated, bear-like, pausing only to dither down in October. In other words, Challenger aggregate dividend value of $1k invested in each dog continually rose above the aggregate single share price every month since April, except October, and then March. In marked contrast to the Dow, Challenger Dog top ten average price per dollar of annual dividend was $6.25 as of April 8.

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Actionable Conclusion (4): Ten Challenger Dogs Cast A 31.46% Average Upside And (5) Three Showed Average 15.48% Downside To April 2017

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To quantify top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metrics, analyst mean price target estimates were another tool to dig out bargains.

Actionable Conclusions: Wall St. Wizards Predicted (6) A 12.38% Average Upside & (7) 19.84% Average Net Gain from Top 30 Dividend Challengers Come April, 2017

Top thirty dogs from David Fish's Dividend Challengers list were graphed below as of April 8, 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 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 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 7.8% lower dividend from $30K invested as $1k in each stock in this group while aggregate single share price was projected to increase 16% 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): Wall St. Analysts Envision Ten Dividend Challenger Dogs Netting 22.7% to 114.34% Gains By April 2017

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

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

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Williams Partners LP (WPZ) was projected to net $1,143.40 based on the lowest estimate from twelve analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 54% more than the market as a whole.

Tesoro Logistics LP (NYSE:TLLP) was projected to net $446.94 based on dividend plus mean target price estimates from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 20% more than the market as a whole.

Colony Capital Inc. (NYSE:CLNY) was projected to net $411.17 based on estimates from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.

Sunoco LP (NYSE:SUN) was projected to net $379.94 based on dividends plus median target price estimate from fifteen analysts less broker fees. The Beta number showed this estimate subject to volatility 700% more than the market as a whole.

Golar LNG Partners LP was projected to net $359.97 based on dividends plus mean target price estimate from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole

Ashford Hospitality Trust (NYSE:AHT) was projected to net $294.55 based on dividends plus twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 64% more than the market as a whole.

Medallion Financial was projected to net $285.49 based on dividends plus a median target price estimate by two analysts less broker fees. The Beta number showed this estimate subject to volatility 53% more than the market as a whole.

Starwood Property Trust (NYSE:STWD) was projected to net $266.02 based on a median target price estimate from nine analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 55% less than the market as a whole.

Enbridge Energy Partners LP (NYSE:EEP) was projected to net $264.14 based on dividends plus a median target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 40% more than the market as a whole.

EnLink Midstream Partners was projected to net $226.79 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 113% more than the market as a whole.

The average projected net gain in dividend and price was 40.79% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 96% more than the market as a whole.

Actionable Conclusion (9): (Bear Alerts) Analysts Projected Two Challenger Dogs To Show Net Losses Averaging 9.5% By 2017

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

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EnLink Midstream LLC (NYSE:ENLC) was projected to lose $76.51 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 159% more than the market as a whole.

Calamos Asset Management (NASDAQ:CLMS) was projected to lose $114.18 based on dividend and a median target price estimate from three analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 5% less than the market as a whole.

The average net loss in price plus broker fees including annual dividends was predicted to be 9.53% on $2k invested as $1k in each of these two dogs. This loss estimate was subject to average volatility 77% more than the market as a whole.

Dog Diligence Sought To Uncover Bargains

As noted above, Ten Challenger dividend dogs showing the biggest dividend yields as of April 8 represented only three of nine business sectors: basic materials (8), services (1), and financial (1). Listed as of market close, April 8, Challenger dividend dogs arranged themselves by yield as follows:

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Actionable Conclusions: Analysts Assert (10) 5 Lowest Priced of Top Ten Highest Yield Challengers Deliver 23.66% VS. (11) 33.12% Net Gains from All Ten As Of April 8, 2017

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$5000 invested as $1k in each of the five Lowest priced stocks in the top ten Challenger kennel by yield promised 28.56% LESS net gain than $5,000 invested as $500 in each of all ten. The ninth lowest priced Challenger dog, Williams Partners LP, was projected to deliver the best net gain of 114.34%.

Lowest priced five Challenger dogs as of April 8 were: American Midstream Partners LP; NGL Energy Partners LP; Medallion Financial Corp.; Archrock Partners LP; EnLink Midstream Partners LP, whose prices ranged from $6.53 to $12.48.

The higher priced five Challenger dogs as of March 22 were: Golar LNG Partners LP; Enbridge Energy Partners LP; Triangle Capital Corp. (NYSE:TCAP); Martin Midstream Partners LP; Williams Partners LP; Targa Resources Corp., whose prices ranged from $15.08 to $29.57.

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 also works well for testing bargain Challenger dogs, as you see.

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.

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

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

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.

Three of these Challenger pups are members of the now 34 Dogs Of The Week (DOTW) found on The Dividend Dog Catcher premium site. Click here for more details and to subscribe.

One click will answer all your questions about price and guarantees. Sign up. It's virtually no risk. Because, if, for any reason, you choose to end your subscription, you'll get a prorated refund from Seeking Alpha.

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, APTS.

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.