Pattern Energy Is Top Utility Dog For July By Yield, Upside And Net Gains

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Includes: AES, BA, CNP, CVX, ED, ELP, ETR, EXC, GE, GXP, HE, INTC, LNT, NGG, NYLD, OGE, PEG, PEGI, PG, PPL, SO, XOM
by: Fredrik Arnold

Summary

Despite viability, sustainability and credibility issues plus lowered sector dividends, a clear Alpha Dog leads. Pattern Energy yield of 6.6%; upside of 9.47% and 14% net gain topped all 7/20/2016.

Fifty Utilities priced >$5, ranged in yield from .82% to 6.57%. Top ten dogs, ETR, AQN.TO, NGG, SO, CNP, NYLD, SBP.TO, PEGI, APU, & SPH, mixed down. Dow dogs charged.

Analyst 1yr. targets revealed top ten price upsides averaging 4.32% with net gains just 6.8%. Thirty Utilities upsides averaged 4.15% but net gains were 2.2%.

Analysts gains were 2.63% to 14.14% for EXC, PEG, SPB.TO, OGE, AES, NGG, PPL, GXP, NYLD, & PEGI. Losses of 3.1% to 37.6% were cast for LNT, ED & ELP.

$5k invested in the lowest priced five of the ten ten top yield utilities dividend dogs showed 56.15% more net gain than $5k invested in all ten.

July SML Utilities Dogs

Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of July 20, 2015 for Small, Mid, & Large cap Utilities 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.

Dividend Dog Rules

The "dog" moniker was earned by stocks exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as "dogs."

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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, and (3) net gain results based on analyst one-year target projections.

The series was recently revised to report on 11 sectors as defined by Morningstar and tracked here: Basic Materials, Communication Services, Consumer Cyclical, Consumer Defensive, Energy Financial Services, Healthcare, Industrials, Real Estate, Technology, and 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 Sorts Utilities Stocks by Yield

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Actionable Conclusion (1) Electric Category Leads July Utilities

Of ten stocks with the biggest utilities sector dividend yields after June, per YCharts, 3 represented the diversified group; 1 gas; 4 electric; 2 independent producers.

The independent producers placed first and fourth overall. Top dog was Pattern Energy Group (NASDAQ:PEGI) [1], following was Algonquin Power (AQN,TO) [4].

Second by yield was the best of the three diversified firms, Superior Plus (SPB.TO) [2]. The two other diversified firms placed fifth, and seventh: National Grid (NYSE:NGG)[5]; Entergy (NYSE:ETR) [7] Four electric utilities were led by the third place utility by yield, NRG Yield Inc.(NYSE:NYLD) [3]. The other three placed eighth through tenth, Southern Company (NYSE:SO) [8], PPL Corporation (NYSE:PPL) [9], and Hawaiian Electric Industries, Inc,. (NYSE:HE) [10].

Finally, the lone gas utility placed sixth, CenterPoint Energy (NYSE:CNP) [6], to complete the July utilities top ten list.

Utility Dividend & Price Results Were Compared With Dow Dogs

Graphs below per market close 7/20/16 compared relative strengths of the top ten utilities sector dogs with those of the Dow industrials index. 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.

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Actionable Conclusions: (2) Utilities Mixed Down As (3) Dow Dogs Charged.

After June dividend from $10k invested as $1k in each of the top ten utilities, drop continued by 18.6% while aggregate single share price fell 1.2% to end a bullish path initiated in January.

Dow dogs charged as dividend dropped while price soared after June to set a new overbought record for the index. Projected annual dividend from $10k invested as $1K in each of the top ten declined 5%. At the same time, aggregate single share price flew up 10.25% to set 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) grew to a record gap.

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Actionable Conclusion (4): Dow Dogs Continue Overbought

In 2015, the gap was $331 or 85% for 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 ExxonMobil (NYSE:XOM) pushed the gap to $334 or 85%.

November price over dividend gap went to $303 or 78%. As of December 4 the gap stood at $294 or 75%.

Come January 12, prices of the ten Dow top dogs fell, and dividends rose, as big Boeing (NYSE:BA) replaced little General Electric (NYSE:GE) in the top ten to reduce the overbought gap to $215 or 53%. February moves put the gap at $230 or 55%. March hyped the move to $370 or 94% and April saw high priced Procter & Gamble (NYSE:PG) move low priced Intel (NASDAQ:INTC) out of tenth place to expand the gap to $400 or 104%. Lowly Intel returned to the top ten in May to lower the overbought gap to $358 or 94% and, in June, GE replaced Merck (NYSE:MRK) to lower price over dividend results to $354 or 94%. But July put big boys back on the top ten board to make the gap $446 or 125%.

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 $27.94.

Conversely, the utilities dog chart shows them as increasingly higher in risk but also potentially as higher gain pups than those of the Dow. The utility top ten average price per dollar of annual dividend as of July 20 was $22.14.

Wall Street Wizard Weightings

One-year median target price set by brokerage analysts multiplied by the number of shares in a $1k investment were used to compare 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 on the larger chart below. Three to nine analysts have proved to provide the most accurate median target price estimates.

Actionable Conclusion (5) Ten Utilities Dividend Dog July Upsides Ranged .33% to 9.47% While (6) Ten At The Low End Dropped 2.11% to 39.06%.

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To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" measure 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 Average (7) 1.19% Downsides But (8) 2.1% Net Gains from Top 30 Utilities Dogs By July, 2017

Top thirty dogs from the utilities sector were graphed below to show relative strengths by dividend and price as of July 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 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 twenty stocks divided by 3 created data points for 2016. Projections based on estimated 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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A 0.3% higher dividend was projected from $10K invested in this group as aggregate single share price was predicted to decrease by 0.5% in the coming year. Notice the analysts are predicting an overbought condition for the utilities as of 2017. They predict aggregate single share price to be greater than the total dividends derived from 10K invested as 1k in each of the top ten utilities.

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 more accurate projection estimates. Estimates from only one analyst were not applied (n/a).

A beta (risk) ranking for each 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 market direction.

Actionable Conclusion (9): Wall St. Wizards Conjured Ten Utilities Dogs To Net 2.63% to 14% by July, 2017

Five of ten top dividend yielding utilities dogs were verified as being among the ten net gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy for this sector as graded by Wall St. wizards was 50% accurate.

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

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Pattern Energy Group Inc was projected to net $140.42 based on dividends plus a median target price estimate from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 22% less than the market as a whole.

NRG Yield Inc was projected to net $121.82 based on estimates from thirteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 2% more than the market as a whole.

Great Plains Energy (NYSE:GXP) was projected to net $75.82 based on dividends plus the median target price estimate from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 53% less than the market as a whole.

PPL Corporation was projected to net $70.13, based on dividend plus median target price estimates from fifteen analysts less broker fees. The Beta number showed this estimate subject to volatility 46% less than the market as a whole.

National Grid was projected to net $57.26 based on dividends plus a median target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 43% less than the market as a whole.

The AES Corporation (NYSE:AES) was projected to net $54.34 based on estimates from eleven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 36% more than the market as a whole.

OGE Energy (NYSE:OGE) was projected to net $45.63 based on the median price estimate from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.

Superior Plus (SPB.TO) was projected to net $44.69 with no upside estimates from analysts. Just dividends less broker fees. The Beta number showed this estimate subject to volatility 20% more than the market as a whole.

Public Service Enterprise (NYSE:PEG) was projected to net $40.85 based on estimates from fifteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 62% less than the market as a whole.

Exelon (NYSE:EXC) was projected to net $26.25 based on dividends plus the median target price estimate from seven4teen analysts less broker fees. The Beta number showed this estimate subject to volatility 82% more than the market as a whole.

The average net gain in dividend and price was 6.77% on $10k invested as $1k in each of these ten utilities dogs. This gain estimate was subject to average volatility 23% less than the market as a whole.

Actionable Conclusion (10): (Bear Alerts) Analysts Predicted Three Utility Dogs Cast Net Losses of 3.1% To 37.39% By July, 2017

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

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Alliant Energy (NYSE:LNT) was projected to lose $30.98 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 18% more than the market as a whole.

Consolidated Edison (NYSE:ED) was projected to lose $69.68 based on dividend and a median target price estimate from thirteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 89% less than the market as a whole.

Energy Company of Parana (NYSE:ELP) was projected to lose $375.89 based on dividend and a median target price estimate from two analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 82% more than the market as a whole.

Average net loss in dividend and price was 15.89% on $3k invested as $1k in each of these three utilities dogs. This loss estimate was subject to average volatility 4% more than the market as a whole.

Utility Annual Analyst Price Histories Appeal To Contrarians

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Year to date 77% upside price performance for ELP the big Utility "loser" is in mighty contrast to the smaller 15.3% upside price history graphed for this month's analysts upside utility star stock, PEGI. Momentum is barely on the side of this Wall Street wizard prognostication.

Dog Metrics Extracted Extra June Bargains From Five Lowest Priced Highest Yield Utility Dogs

Ten small, mid, and large cap utilities equities were culled by yield from here. Yield (dividend / price) results verified by Yahoo Finance did the ranking.

Actionable Conclusions: Analysts Allege 5 Lowest Priced of Ten Highest Yield Utilities Dividend Dogs (11) Generate 6.73% VS. (12) 4.31% Net Gains by All Ten by July 20, 2017

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$5000 invested as $1k in each of the five Lowest priced stocks of the top ten utilities dividend kennel by yield were predicted by analyst 1 year targets to deliver 56.15% more net gain than $5,000 invested as $.5k in all ten. The Pattern Energy Group , was projected to deliver the most net gain of 14.04%.

Lowest priced five utilities dividend dogs for July 20 were: Superior Plus (SPB.TO); Algonquin Power & Utilities Corp. (AQN.TO); NRG Yield Inc ; Pattern Energy Group Inc ; CenterPoint Energy , with prices ranging from $11.13 to $23.92.

Higher priced five utilities dividend dogs for July 20 were: Hawaiian Electric Ind ; PPL Corporation ; Southern Company ; National Grid ; Entergy (EGG), whose prices ranged $30.53 to $80.39.

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 has been used to find the more rewarding dogs in the Utilities kennel.

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.

Annual Analyst Accuracy

You see below the one year result of ten analyst target estimates for Dow stocks per Yahoo from this article from July 23, 2015. These were applied to the "basic method" Michael B. O'Higgins employed for beating the Dow. The key shows: losses in a reddish tint; poor results tinted yellow; gains tinted green; no tint means no difference.

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The "basic method" analyst accuracy score for these top ten utility stocks by yield between July 23, 2015 July 22, 2016 was three losses, two poor showings, and five gains. Two low price dogs were gainers for the year. The other three low price dogs were losers or poor showers. This group of Utilties showed a 50% positive result since 2015. Perhaps PEGI can improve on its poor showing from 2015 with a gain into 2017 from this point.

Gains/declines as reported did 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.

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 reference points for a small, mid, and large cap utility equities dividend stocks as of July, 2016. These were not recommendations.

Four of these utilities sector dividend pups qualify as valuable catches! They are listed with the now 48 Dogs Of The Week (DOTW) found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information.

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 & Q3 August picks, send your e-mail address, ticker symbol for your favorite dividend stock, and name of your favorite team of any sport or activity 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 ycharts.com; dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.

Disclosure: I am/we are long GE, INTC, PFE, 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.