Top Consumer Defensive Dogs In June Are Schools, Smokes, & Sweets

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Includes: AVP, BTI, BUD, CALM, CCLAY, CPLA, DL, FLO, GNC, JBSAY, KO, MHG, NUS, PETS, TGT, VGR
by: Fredrik Arnold

Summary

Consumer Defensive (ConDef) top ten by yield averaged 5.66% as of June 21. Thirty ranged 3.02% to 9.11%. Top five were in education, tobacco, confectioners, packaged foods, and household products.

Top yielders JBSAY, PETS, NWC.TO, MHG, CCLAY, AVP, CALM, RSI.TO, VGR & DL, pulled back after May, while ten Dow dogs charged (bullishly bolstering being overbought).

Upsides of 8.12% to 41.70% distinguished another ten. 9.64% to 48.81% gains resulted for BUD, BTI, CALM, TGT, KO, FLO, GNC, CPLA, AVP & DL. But NUS showed a loss.

Thirty ConDef firms showed upsides averaging 5.15% based on analyst 1yr. median target prices. Gains averaged 8.1% per those targets, including dividends, less broker fees.

$5k invested in the lowest priced five of ten top yield ConDef dogs promised 45.87% greater returns than $5k invested in all ten, per analyst targets.

SML Consumer Defensive Dogs Of June

Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of June 21, 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.

The series was recently 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): Education, Tobacco, Confectioners, Packaged Foods, & Household Products Yields Lead ConDef Sector

Ten stocks showing the biggest dividend yields after May represented nine industries: education; tobacco; confectioners; packaged foods; household & personal products; beverages-soft drinks; farm products; grocery stores; pharmaceutical retailers.

Tops by yield was the one educator: China Distance Education (NYSE:DL) [1]. The tobacco company placed second, Vector Group (NYSE:VGR) [2].

The lone confection company was third, Rogers Sugar (RSI.TO) [3], and the tops of two packaged foods outfits competed the top four, Cal-Maine Foods (NASDAQ:CALM) [4]. The other packaged foods firm filled the tenth slot, JBS S.A. (OTCQX:JBSAY) [10].

The household & personal products firm placed fifth, Avon Products (NYSE:AVP) [5]. A lone beverages-soft drink firm placed sixth, Coca-Cola Amatil (OTCPK:CCLAY) [6]. The provider of farm products placed seventh, Marine Harvest (NYSE:MHG) [7].

One grocery store retailer placed eighth, North West (NWC.TO) [8]. Finally, the pharmaceutical retailer representative placed ninth, PetMed Express (NASDAQ:PETS) [9], and completed the June consumer defensive top ten dog list by yield.

Consumer Defensive Sector Dividend vs. Price Results Contradicted The Dow

Relative strengths of the top ten consumer defensive dogs (graphed below by yield as of 6/21/2016) were compared to those of the Dow. Annual dividend history derived 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 Retreated Bearishly As (3) Dow Dogs Charged Bullishly

As of June 21, dividend from $10k invested as $1k in each of the top ten consumer defensive stocks soared as price plummeted. Price dropped 49% and dividend jumped 19% to sound the retreat.

Dow dogs got back to their bullish ways after May. Projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs dropped 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 to its widest of the year.

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

In July, 2015, 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 $381 or 102%, again.

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 $26.63 in June, which is up 1.8% from $26.16 in May.

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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 $17.91, roughly 1/3 less than the Dow price per dividend dollar.

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Wall Street Wizard Wishes

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 in the second chart below. Three to nine analysts have usually provided the most accurate mean target price estimates.

Actionable Conclusions: Analysts Calculated (5) 8.12% to 41.7% Price Upsides For Ten Consumer Defensive Dogs Come June 2017, and (6) ,0.27% to 10.34% Downsides for Three

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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 5.15% Average Upside; (8) A 8.1% Average 1 yr. Net Gain from Top 30 June ConDef Dogs

Consumer defensive sector dogs were graphed below to show relative strengths by dividend and price as of June 20, 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 5.3% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 4.77% 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 the dividend and price indicator lines change top for bottom positions in the graph above. This indicates that current top consumer defensive sector stocks are likely to become overbought like the Dow, come 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 9.64% to 48.81% Gains by June, 2017

Three 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 just 30% accurate.

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

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China Distance Education was projected to net $488.10, based on dividends plus a median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 58% more than the market as a whole.

Avon Products was projected to net $236.59, based on dividends plus a mean target price estimate from twelve analysts less broker fees. The Beta number showed this estimate was subject to volatility 129% more than the market as a whole.

Capella Education (NASDAQ:CPLA) was projected to net $170.72 based on dividends plus the median target price estimate from six analysts less broker fees. The Beta number showed this estimate subject to volatility 49% less than the market as a whole.

GNC Holdings (NYSE:GNC) was projected to net $143.64 based on estimates from thirteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 25% less than the market as a whole.

Cal-Maine Foods was projected to net $135.43 based on estimated dividends plus median target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 18% less than the market as a whole.

Flowers Foods (NYSE:FLO) was projected to net $126.67 based on dividends plus the median of annual price estimates from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 13% less than the market as a whole.

Coca-Cola (NYSE:KO) was projected to net $118.93 based on estimates from nineteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 18% less than the market as a whole.

British American Tobacco (NYSEMKT:BTI) was projected to net $112.23, based on dividends plus a median target price estimate from two analysts less broker fees. The Beta number showed this estimate was subject to volatility 12% more than the market as a whole.

Target (NYSE:TGT) was projected to net $110.89 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 48% less than the market as a whole.

Anheuser-Busch InBev (NYSE:BUD) was projected to net $96.41 based on estimates from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 18% more than the market as a whole.

Average net gain in dividend and price was 17.4% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 5% more than the market as a whole.

Actionable Conclusion (10): (Bear Alert) Analysts Predicted A Consumer Defensive Dog Would Post A Net Loss of 9.24% In June 2017

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

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Nu Skin Enterprises (NYSE:NUS) was projected to lose $92.38 based on dividend and a median target price estimate from eight analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 69% more than the market as a whole.

Two ConDef Sector Price Histories Graphically Illustrate Analyst "Contrarian Bias"

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Price histories carry the news in a year to date graph: the lowest consumer defensive "loser", NUS, showed a higher and positive year to date price trajectory than the analysts upside star stock, DL which showed as a down dog. Upside momentum is totally missing in the pedigree of 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 mostly contrarian indicators.

Dog Metrics Found Opportunities 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 May, per YCharts data, represented nine industries: education; tobacco; confectioners; packaged foods; household & personal products; beverages-soft drinks; farm products; grocery stores; pharmaceutical retailers.

Actionable Conclusions: (11) Analysts Advise 5 Lowest Priced of Ten Highest Yield Consumer Defensive Dividend Dogs Deliver 16.34% VS. (12) 11.20% Net Gains by All Ten as of June 21, 2017

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$5000 invested as $1k in each of the five Lowest priced stocks in the top ten consumer cyclical dividend kennel by yield were predicted by analyst 1 year targets to deliver 45.87% more net gain than $5,000 invested as $.5k in each of all ten. The fifth lowest priced, China Distance Education , was projected to deliver the best net gain of 48.81%.

Lowest priced five consumer defensive dividend dogs as of June 21 were: Avon Products; JBS S.A.; Rogers Sugar (RSI.TO); Coca-Cola Amatil; China Distance Education, with prices ranging from $4.17 to $9.88.

Higher priced five consumer goods dividend dogs for June 21 were: Marine Harvest; PetMed Express; Vector Group; North West (NWC.TO); Cal-Maine Foods, whose prices ranged from $17.44 to $41.01.

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

Five of these consumer cyclical sector dividend pups are part of the now 44 Dogs of the Week (DOTW) found on The Dividend Dog Catcher premium site. Two DOTW are in the top ten by yield in this article. Join the growing throng of deputy dog catchers. Click here to learn more 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: fredrika120@gmail.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 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.

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.