Healthcare SML Dogs Diagnosed
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 healthcare 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 Dogs Prepped For Examination
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 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 Checked Healthcare Stocks For Yield
Actionable Conclusion (1): Drug Makers & Care Facilities Tied For Representation by Yield 4-4
Top ten healthcare sector dogs showing the biggest dividend yields by this screen as of June 17 represented five industries: (1) drug manufacturers - major included four stocks; (2) biotechnology had one stock; (3) medical care placed one stock; (4) long-term care facilities had three stocks (5) diagnostics & research placed one stock on the list.
Top dog was from the four drug manufacturers - major, GlaxoSmithKline PLC (NYSE:GSK) ; The other three drug manufacturer stocks found themselves in sixth, eighth, and tenth places: AstraZeneca (NYSE:AZN) , Sanofi (NYSE:SNY) , and AbbVie (NYSE:ABBV) .
Second place healthcare sector stock by yield was the single biotechnology enterprise, PDL BioPharma (NASDAQ:PDLI) . A medical care firm placed third, Medical Facilities Corp. (DR.TO) .
Three long-term care facilities stocks placed fourth, fifth, and seventh, Extendicare Inc. [EXC.TO] ; Sienna Senior Living (SIA.TO) ; Kindred Healthcare (NYSE:KND) . Finally, a single diagnostics & research firm took ninth, Meridian Bioscience (NASDAQ:VIVO)  to complete the top ten healthcare dogs by yield in May.
Healthcare Dividend vs. Price Moves Contrasted With Dow Dogs
Graphs below compare relative strengths of the top ten healthcare sector dogs by yield as of Friday 6/17/16 at 1:30 PM with those of the Dow industrials index of market close, Wednesday 6/15/16. Annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks, along with the total single share price of those ten stocks, made the data points shown in green for price and blue for dividends.
Actionable Conclusions: (2) Healthcare Dogs Mixed Down Into June
The Healthcare collection of dividend payers dividend dropped while price also tumbled into June. Aggregate dividend from $10k invested as $1k in each of the top ten healthcare fell 11% after May while their single share price dropped 0.09%, to make the mix down.
Dow charged bullishly as their dividend dropped as price move higher after May. Projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs declined 2.37%. At the same time, aggregate single share price rose 5.2% to set the Dow 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 Get More Overbought
In July the overhang was $269 or 71%, but it inflated again as IBM (NYSE:IBM) replaced Pfizer (NYSE:PFE) 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 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 General Electric (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, 2016, prices of the ten 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 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 & 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 $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.
Conversely, the healthcare dog chart shows those dogs to be higher risk but prime potential healthy gain pups compared to those of the Dow. Top ten average Healthcare stock price per dollar of annual dividend as of June 17 was $19.80 or 25.3% below the Dow prices per annual dividend dollar.
Wall Street Analysts Assessed Dog Upside & Gains
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 Conclusion: (5) Analysts Estimated 30.58% Average Price Upsides For Top Ten June Healthcare Dogs While, (6) One Dog Showed a 6.46% Downside
Actionable Conclusions: Wall St. Wizards Wished Top 30 June Healthcare Dogs Would Deliver (7) 4.92% Average Upside And (8) 13.94% Average 1 yr. Net Gain
Health sector dogs were graphed below to show relative strengths by dividend and price as of June 17, 2016 and those as projected by analyst median 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.
Analyst targets reported by Yahoo! Finance forecast 11% less dividend from $10K invested as $1k in ten dogs in this group while aggregate single share price for those ten was projected to increase by 14.6% in the coming year.
Notice the forecast shows price moving higher than dividend. So the analyst forecast predicted Health dogs moving into an overbought condition one year out.
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 historically provided the most accurate estimates. Estimates provided by one analyst were not applied (n/a).
A beta (risk) ranking for each stock was provided in the far right column of 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 Conclusions: Analysts Forecast (9) 24.38% to 41.41% Net Gains From Ten Healthcare Dividend Dogs As Of June, 2017.
Four of ten top dividend yielding healthcare dogs were among the ten top gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy for the healthcare sector as graded by Wall St. wizards was 40% accurate.
Ten probable profit generating trades were revealed by Thompson/First Call in Yahoo Finance for 2017:
Teva Pharmaceutical Industries (NASDAQ:TEVA) was predicted to net $414.14 based on dividends plus the median of annual price estimates from twenty-two analysts less broker fees. The Beta number showed this estimate subject to volatility 57% less than the market as a whole.
Sanofi SA netted $406.74 based on a mean target price estimate from three analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 12% less than the market as a whole.
Phibro Animal Health (NASDAQ:PAHC) was expected to net $386.50 based on mean target price estimates from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 70% less than the market as a whole.
Kindred Healthcare netted $377.11 based on estimates from eight analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 22% more than the market as a whole.
Eli Lilly (NYSE:LLY) netted $308.82 based on dividends plus the mean of annual price estimates from twenty-one analysts less broker fees. The Beta number showed this estimate subject to volatility 78% less than the market as a whole.
AstraZeneca netted $298.36 based on estimates from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 41% less than the market as a whole.
Smith & Nephew (NYSE:SNN) netted $269.68 based on dividend plus a median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 25% less than the market as a whole.
Abbott Laboratories (NYSE:ABT) netted $262.43 based on dividends plus a mean target price estimate from fifteen analysts less broker fees. The Beta number showed this estimate subject to volatility 49% more than the market as a whole.
Amgen Inc. (NASDAQ:AMGN) net per analysts was $249.32 based on dividends plus median target price estimate from sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 26% more than the market as a whole.
GlaxoSmithKline netted $243.78 based on median target prices from three analysts less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.
Average net gain in dividend and price was 32.17% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 19% less than the market as a whole.
Actionable Conclusion (10): (Bear Alert) Analysts Predicted One Healthcare Dog Would Throw A Net Loss Of 5.66% By June 2017
The probable losing trade revealed by Thomson/First Call in Yahoo Finance in 2017 was:
Owens & Minor (NYSE:OMI) was projected to lose $56.59 based on dividend and a median target price estimate from seven analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 6% less than the market as a whole.
A Graphic Comparison of Two Healthcare Sector Price Histories Illustrated Analyst "Contrarian Bias"
Price histories repeat the news shown below in a one year graph: the lowest Healthcare "loser," OMI, showed higher historic prices than the analysts upside star stock, TEVA. Upside momentum is substantially missing in the Wall Street Wizard target estimated top dog.
This evidence correlates with Michael O'Higgins "media index" advice. He asks 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 contrarian indicators.
Dog Metrics Failed To Find Bargains From Five Lowest Priced Highest Yield Healthcare Dogs In June
Ten small, mid, and large cap healthcare equities were culled by yield from here. Yield (dividend / price) results verified by Yahoo Finance did the ranking.
Actionable Conclusions: (11) Analysts Ascertain 5 Lowest Priced of Top Ten Highest Yield Healthcare Dividend Dogs To Generate 14.56% VS. (12) 19.65% Net Gains by All Ten by June, 2017
$5000 invested as $1k in each of the five Lowest priced stocks of the top ten healthcare dividend kennel by yield were predicted by analyst 1 year targets to deliver 25.92% LESS net gain than $5,000 invested as $.5k in all ten. The eighth lowest priced healthcare dividend dog, Sanofi , was projected to deliver the best net gain of 40.67%.
Lowest priced five healthcare dividend dogs for June 17 were: PDL BioPharma, Inc.; Extendicare, Inc. (EXE.TO); Kindred Healthcare; Sienna Senior Living (SIA.TO); Medical Facilities Inc. (DR.TO), with prices ranging from $3.14 to $18.20.
Higher priced five healthcare dividend dogs for June 17 were: Meridian Bioscience; AstraZeneca Sanofi; GlaxoSmithKline PLC; AbbVie, whose prices ranged from $19.12 to $59.98.
This distinction between five low priced dividend dogs and the general field of ten reflects the opposite of a "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 Healthcare kennel, or whether they won't go as predicted.
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.---Fredrik Arnold
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.
Three of these healthcare sector dividend pups qualify as valuable catches! Find them as three of the now 43 Dogs of the Week found on The Dividend Dog Catcher premium site. Click here to peruse and/or 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: firstname.lastname@example.org. Remember: E-mail, ticker, team!
Stocks listed above were suggested only as possible starting points for your Healthcare 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 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 PFE, INTC, CSCO, 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.