Communication Service SML Dogs Show In June
The "dog" moniker was earned by stocks exhibiting three traits: (1) paying reliable, repeating dividends, (2) whose prices fell to where (3) yield (dividend/price) grew higher than their peers (such as this commservice collection). Thus, the highest yielding stocks in any collection became known as "dogs."
Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of June 16, 2016 for Small, Mid, & Large cap communication service 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 intended to reveal bargain stocks to buy and hold up to one year. See Dow 30 article for further 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 Parsed CommService Stocks by Yield
Actionable Conclusion (1): Telcos Deliver Top Comm Sector Yields
The communication services sector features two industries, telecommunications, and pay tv. The telcos played the elephant in the sector by dominating the 50 list 46 to 4 over pay tv, through June, per YCharts, verified by Yahoo!Finance data.
Tops by yield were these ten telecommunication firms: MTN Group (OTCPK:MTNOY) ; Mobile Telesystems (NYSE:MBT) ; Telefonica (NYSE:TEF) ; Bezeq The Israeli Teleco (OTCPK:BZQIY) ; Frontier Communications (NYSE:FTR) ; CenturyLink (NYSE:CTL) ; Advanced Info Service (OTCPK:AVIFY) ; Spark New Zealand (OTCPK:SPKKY) ; Windstream Holdings (NASDAQ:WIN) ; Telefonica Brasil (NYSE:VIV) .
Communication Service Sector Dividend vs. Price Results Contrasted With Dow Dogs
Relative strengths of the top ten technology dogs graphed below by yield 6/16/2016 ran counter 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.
Actionable Conclusions: (2) CommService Dogs Retreated As (3) Dow Dogs Charged
As of June 16, dividend from $10k invested as $1k in each of the top ten communication stocks increased as aggregate single share price of those ten plummeted. Price dropped 12% since May while dividend moved up 0.23% to mark the retreat.
Dow dogs charged again in June. Projected annual dividend from $10k invested as $1K in each of the top ten continued to drop 2.4% after May 5. At the same time, price soared 2.4% to light the charge.
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) expanded toward its widest of the year.
Actionable Conclusion (4): Dow Dogs Stay In The Overbought Zone
In July the overhang was $269 or 71%, but it inflated again as IBM replaced Pfizer to widen the gap to $331 or 85% in 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, 2016, 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%. March extended the move as high price PG replaced INTC in the ten slot moving the bar to $372 or 95%. April saw higher prices return to XOM and CVX and Boeing returned to the top ten so the price gap went to $392 or 102% before Procter and Gamble dropped out of the top ten in May, to help the gap recede 11% to $349, or 91%. Upward market pressure on the Dow moved June's numbers to to $376 or 100%.
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 now $26.51 in June, which is up 1.3% from $26.16 in May.
In contrast to the Dow, communication service dog charts show higher risk but also higher gain. CommService top ten average price per dollar of annual dividend dropped to $12.37, or 47% of the price of a Dow dollar of dividend.
Wall Street Wizard Workings
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 Estimated (5) 16.19% Average Price Upsides For Ten CommService Dogs And (6) 13.5% Average Downsides for Three
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 Cast (7) A 4.08% Average Upside; (8) A 9.07% Average 1 yr. Net Gain from Top 30 June CommService Dogs
Communications Service sector dogs were graphed below to show relative strengths by dividend and price as of June 16, 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 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.
Analysts reported by Yahoo finance projected a 2.28% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 6.3% 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 market direction.
Actionable Conclusion (9): Wall St. Wizards Wished 10 Comm Dogs To Net 8.27% to 39.44% Gains by June, 2017
Five of the ten top yielding communication service 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 communication service stocks as graded by Wall St. wizards was 50% accurate.
Ten probable profit generating trades were revealed by Thomson/First Call in Yahoo Finance for June 2017.
Millicom International Cellular (OTCPK:MIICF) the Belgian mid-cap telco and pay-tv provider, to South American and African customers was projected to net $394.38 based on a median target price estimate from two analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 53% more than the market as a whole.
Vodafone Group (NASDAQ:VOD) was projected to net $316.21, 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.
America Movil (NYSE:AMX) was projected to net $285.20 based on estimates from fifteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 22% less than the market as a whole.
Frontier Communications, Inc. was projected to net $255.07 based on dividends plus a median target price estimate by eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 33% less than the market as a whole.
West Corporation (NASDAQ:WSTC) was projected to net $202.92 based on estimates from eight analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 37% more than the market as a whole.
Telefonica Brasil was projected to net $190.92, based on dividends plus a median target price estimate from nine analysts less broker fees. The Beta number showed this estimate was subject to volatility 55% more than the market as a whole.
CenturyLink, Inc. was projected to net $123.91 based on estimates from fourteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole.
Shaw Communications, Inc. (NYSE:SJR) was projected to net $94.76 based on dividends plus the median of annual price estimates from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 67% more than the market as a whole.
Mobile Telesystems was projected to net $89.90 based on estimated dividends plus median target price estimate from sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole.
MTN Group was projected to net $82.71, based on dividends alone with no supporting target price upside but with broker fees subtracted. The Beta number showed this estimate was subject to volatility 11% less than the market as a whole.
Average net gain in dividend and price was 20.36% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 6% more than the market as a whole.
Actionable Conclusion (10): (Bear Alerts) Analysts Predicted Two CommService Dogs Would Average A Net Loss Averaging 14.6% By June 2017
Two probable losing trades revealed by Thomson/First Call in Yahoo Finance in 2017 were:
Consolidated Communications Holdings (NASDAQ:CNSL) was projected to lose $109.40 based on dividend and a median target price estimate from four analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 8% less than the market as a whole.
Windstream Corp was projected to lose $183.00 based on dividend and a median target price estimate from nine analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 40% less than the market as a whole.
The average net loss in dividend and price with broker fees included was 14.62% on $2k invested as $1k in each of these two dogs. The beta number showed this estimate subject to volatility 34% less than the market as a whole.
A Graphic Comparison of CommService Price Histories Shows Analyst "Contrarian Bias"
Price histories repeat the news shown below in a one year graph: the lowest CommService "losers" , and , show higher historic prices than the analysts upside star stock, . Upside momentum is fundamentally lacking in the Wall Street Wizard target estimated top dog.
This evidence correlates with Michael O'Higgins "media index" admonition. He advises investors to pay close attention to "magazine covers, news headlines, and ads placed by investment advisors, primarily in Barron's." He concludes that "you can make out like a bandit by acting the opposite way." Apparently analyst target price estimates are useful as contrarian indicators.
Dog Metrics Tried To Find More Bargains From Five Lowest Priced Highest Yield CommService Stocks
Ten commservice stock equities were culled by yield. These dividend/price results were verified by Yahoo Finance to provide the ranking.
This communication services sector, contains just two industries, telecommunications and pay tv. Ten comm stocks that showed the biggest dividend yields through June, per YCharts, as verified by Yahoo! Finance data, represented only telecom.
Actionable Conclusions: (10) Analysts Advance 5 Lowest Priced of Ten Highest Yield Communication Dividend Dogs Show 6.07% VS. (11) 8.07% Net Gains by All Ten as of June 16, 2017
$5000 invested as $1k in each of the five Lowest priced stocks in the top ten communication service dividend kennel by yield were expected by analyst 1 year targets to deliver 24.81% LESS net gain than $5,000 invested as $.5k in each of all ten. The second lowest priced, Frontier Communications , was projected to deliver the best net gain of 25.51%.
Lowest priced five communication dividend dogs for June 16 were: Advanced Info Service; Frontier Communications; Mobile Telesystems; MTN Group; Windstream Holdings, with prices ranging from $4.62 to $9.08.
Higher priced five communication dividend dogs for June 16 were: Bezeq The Israeli Teleco; Telefonica; Telefonica Brasil; Spark New Zealand (OTCPK:SPKKY); CenturyLink, Inc., whose prices ranged from $9.20 to $27.24.
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 (sometimes) be used to find the more rewarding dogs in the Communication Service 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 Technology dog dividend stock purchase/sale research process. These were not recommendations.
Three of these commservice sector dividend pups qualified as valuable catches! They are listed as members of the now 43 Dogs of the Week found on The Dividend Dog Catcher premium site. Click here to preview and subscribe:
A top performing DOTW dog for the first quarter has been named. A second quarterly winner was discovered May 13. For a free copy of both quarterly reports and analysis of the winning Arnold Q1 & Q2 picks, plus a surprise bonus bottom dog report, send your e-mail address, ticker symbol for your favorite dividend stock, and name of your favorite team of any type to: email@example.com. Remember: E-mail, ticker, team!
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 ycharts.com; indexarb.com; dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.
Disclosure: I am/we are long T, VZ, PFE, INTC, CSCO.
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.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.