Consumer Defensive Dogs In May: What The Dow Index Could Become

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Includes: BUD, CALM, CCU, CPLA, GIS, GNC, KCDMY, KMB, KNBWY, KO, PEP, PETS, PM, RAI, TGT, TIS, VGR, VLGEA
by: Fredrik Arnold

Summary

Consumer Defensive (ConDef) dog top ten by yield averaged 4.74% as of May 13. Thirty ranged from 2.72% to 7.55%. Tobacco, sugar, paper, and beer firms made the top ten.

Top yielders KCDMY, VLGEA, PM, PETS, KNBWY, NWC.TO, TIS, CALM, RSI.TO, & VGR, charged after April, while ten Dow dogs retreated bearishly and stayed overbought.

5.64% to 16.53% upsides distinguished another top ten. Gains of 23.6% to 68.86% enriched KMB, PEP, CCU, TIS, RAI, KO, TGT, BUD, GNC, & CPLA. Losses haunted CALM & GIS.

Thirty ConDef firms showed upsides averaging 3.05% based on analyst 1yr. median target prices. Gains averaged 5.17% per those targets, including dividends, less broker fees.

$5k invested in the lowest priced five of ten top yield ConDef dogs promised 33.43% greater returns than $5k invested in all ten, per analysts.

Consumer Defensive SML Dogs In May

Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of May 13, 2016 for Small, Mid, & Large cap Consumer Defensive 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.

Now the series is being revised to report on eleven sectors as defined by Morningstar and tracked here: Basic Materials; Communication Services; Consumer Cyclical; Consumer Defensive; Energy; Financial Services; Healthcare; Industrials; Real Estate; Technology; Utilities.

This article was 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.

Consumer Defensive Stocks by Yield

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Actionable Conclusion (1): Tobacco, Sugar, Paper, and Beer Yields Lead ConDef Sector

Ten stocks showing the biggest dividend yields after April represented seven industries: tobacco; confectioners; packaged foods; household & personal products; grocery stores; beverages-brewers; pharmaceutical retailers.

Tops by yield was the one of two tobacco firms: Vector Group (NYSE:VGR) [1]. The other tobacco company placed eighth, Philip Morris International (NYSE:PM) [8].

A lone confection company was second, Rogers Sugar (RSI.TO) [2], and a packaged foods outfit competed the top three, Cal-Maine Foods (NASDAQ:CALM) [3].

Tops of two household & personal products firms placed fourth, Orchids Paper Products (NYSEMKT:TIS) [4]. The other household & personal products firm placed tenth: Kimberly-Clark de Mexico (OTCPK:KCDMY) [10].

Tops of two grocery store retailers placed fifth, North West (NWC.TO) [5]. The other grocery firm placed ninth, Village Super Market (NASDAQ:VLGEA) [9].

A lone beverages-brewers firm placed sixth, Kirin Holdings (OTCPK:KNBWY) [6]. Finally, the pharmaceutical retailer representative placed seventh, PetMed Express (NASDAQ:PETS) [t], and completed the May consumer defensive top ten dog list by yield.

Consumer Defensive Sector Dividend vs. Price Results Opposed Those of The Dow

Relative strengths of the top ten consumer defensive dogs (graphed below by yield as of 5/13/2016) were 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 dividends.

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Actionable Conclusions: (2) ConDef Dogs Charged Bullishly As (3) Dow Dogs Retreated Bearishly

As of May 13, dividend from $10k invested as $1k in each of the top ten consumer defensive stocks plummeted as price moved up. Price rose 19% and dividend fell 21% to ignite the charge.

Dow dogs ended their bullish ways after April. Projected annual dividend from $10k invested as $1K in each of the top ten increased 0.5%. At the same time, aggregate single share price tumbled 19% to sound a bearish growl.

The Dow dogs overbought condition (in which aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each) constricted in May.

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Actionable Conclusion (4): Dow Dogs Narrowed Their Overbought Status

The overhang was $392 or 106% in June. The Dow bubble deflated big time as Dupont replaced IBM in the ten slot of the top ten for July to peg the gap at $237 or 63%, then inflated again as IBM replaced Pfizer to widen the gap to $343 or 89% 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 $302 or 78%. Come January 12, prices of the ten Dow top dogs fell, and dividends rose, as Boeing replaced General Electric to push the overbought gap down to $215 or 53%. February moves put the gap at $208 or 48%. March put the chasm at $293 or 73%. April saw JPMorgan Chase replace Merck in the top ten to widen the gap to $394 or 102%. May's retreat was triggered by Intel and Merck returning to the top ten in place of JPMorgan and Proctor & Gamble. So, the overbought gap shrank to $357 or 93%.

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 May average price per dollar of annual dividend is $26.21.

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In contrast to the Dow, consumer defensive dog charts show higher risk but also higher gain potential than the Dow. The consumer defensive top ten average price per dollar of annual dividend came in at $22.36, roughly 15% less than the Dow price per dividend dollar.

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Wall Street Wizard Worries

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

Actionable Conclusions: Analysts Calculate (5) 5.64% to 16.53% Price Upsides For Ten Consumer Defensive Dogs Come May 2017, and (6) 7.5% to 8.5% Downsides for Two

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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. Analysts Calculated (7) A 3.05% Average Upside; (8) A 5.17% Average 1 yr. Net Gain from Top 30 May Consumer Defensive Dogs

ConDef sector dogs were graphed below to show relative strengths by dividend and price as of May 13, 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 median target price was used to gauge the stock upside 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 reported by Yahoo finance projected a 2% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by almost 4% 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 be most accurate in projected estimates. Estimates provided by one analyst were not applied (n/a).

Notice how the dividend and price indicator lines change top for bottom positions in the graph above indicating that current top consumer defensive sector stocks are likely to become overbought like the Dow in 2017.

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 market direction.

Actionable Conclusion (9): Wall St. Analysts Predict 10 Consumer Defensive Dogs To Net 6.47% to 17.56% Gains by May, 2017

One of the ten top dividend yielding consumer defensive dogs were verified as being among the ten top net gainers for the coming year based on analyst 1 year target prices. So this period the dog strategy for these consumer stocks as graded by Wall St. wizards was only 10% accurate.

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

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Capella Education (NASDAQ:CPLA) was projected to net $175.57 based on dividends plus the median target price estimate from six analysts less broker fees. The Beta number showed this estimate subject to volatility 40% less than the market as a whole.

GNC Holdings (NYSE:GNC) was projected to net $128.78 based on estimates from thirteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 27% less than the market as a whole.

Anheuser-Busch InBev (NYSE:BUD) was projected to net $118.60 based on estimates from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 15% more than the market as a whole.

Target (NYSE:TGT) was projected to net $111.95 based on the median target price estimate from twenty-three analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 45% less than the market as a whole.

Coca-Cola (NYSE:KO) was projected to net $107.19 based on estimates from twenty-one analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.

Reynolds American (NYSE:RAI) was projected to net $105.90, 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 39% less than the market as a whole.

Orchids Paper Products was projected to net $89.37, based on dividends plus a median target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility equal to the market as a whole.

United Breweries (NYSE:CCU) was projected to net $72.74, based on dividends plus a mean target price estimate from nine analysts less broker fees. The Beta number showed this estimate was subject to volatility 62% less than the market as a whole.

PepsiCo (NYSE:PEP) was projected to net $72.12 based on estimated dividends plus median target price estimate from twenty-one analysts less broker fees. The Beta number showed this estimate subject to volatility 31% less than the market as a whole.

Kimberly-Clark (NYSE:KMB) was projected to net $64.67 based on dividends plus the median of annual price estimates from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 28% less than the market as a whole.

Average net gain in dividend and price was 10.47% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 28% less than the market as a whole.

Actionable Conclusion (10): (Bear Alert) Analysts Predicted Two Consumer Defensive Dogs Would Average A Net Loss of 8.01% By May 2017

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

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Cal-Maine Foods was projected to lose $56.91 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 15% less than the market as a whole.

General Mills (NYSE:GIS) was projected to lose $66.56 based on dividend and a median target price estimate from sixteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 36% less than the market as a whole.

The average net loss in dividend and price with broker fees included was 6.17% on $2k invested as $1k in each of these two dogs. The beta number showed this estimate subject to volatility 28% less than the market as a whole.

Dog Metrics Found Bargains In Five Lowest Priced Highest Yield Consumer Defensive Stocks

Ten consumer defensive sector stocks determined by yield from here had their yield (dividend / price) results verified by Yahoo Finance to determine the ranking.

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As noted above, ten ConDef stocks that showed the biggest dividend yields after April, per YCharts data, represented seven industries: tobacco; confectioners; packaged foods; household & personal products; grocery stores; beverages-brewers; pharmaceutical retailers.

Actionable Conclusions: (11) Analysts Announce 5 Lowest Priced of Ten Highest Yield Consumer Defensive Dividend Dogs Deliver 3.53% VS. (12) 2.65% Net Gains by All Ten as of May 13, 2017

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$5000 invested as $1k in each of the five Lowest priced stocks in the top ten consumer defensive dividend kennel by yield were predicted by analyst 1 year targets to deliver 33.43% more net gain than $5,000 invested as $.5k in each of all ten. The eighth lowest priced, Orchids Paper Products , was projected to deliver the best net gain of 8.94%.

Lowest priced five consumer defensive dividend dogs as of May 13 were: Rogers Sugar (RSI.TO); Kimberly-Clark de Mexico ; Vector Group , with prices ranging from $5.53 to $21.20.

Higher priced five consumer defensive dividend dogs for April 13 were: Village Super Market ; North West (NWC.TO); Orchids Paper Products ; Cal-Maine Foods ; Philip Morris Intl., whose prices ranged from $25.65 to $101.52.

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. The same technique, you now see, can also be used to find the consumer defensive 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. 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.

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 consumer defensive dog dividend stock purchase/sale research process. These were not recommendations.

Five of these consumer cyclical sector dividend pups are part of the now 38 Dogs of the Week (DOTW) found on The Dividend Dog Catcher premium site. Find four DOTW in the top ten by yield in this article. Join the growing throng of deputy dog catchers. Click here to learn more and 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 www.indexarb.com; 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.

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