July Industrial SML Dogs
Yield (dividend/price) results from here verified by Yahoo Finance were calculated as of June 28, 2016 for Small, Mid, & Large cap Industrials sector 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 Dogs Distinguished
The "dog" moniker was earned in three steps: (1) any stock paying a reliable, repeating dividend, (2) whose price fell to a point where its yield (dividend/price), (3) grew higher than its peers (such as this Industrials collection), is so tagged. Thus, the highest yielding stocks in any collection became known as "dogs."
50 For The Dog Show
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's book "Beating The Dow" (HarperCollins, 1991), now named Dogs of the Dow.
O'Higgins's 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 Tracked Industrial Stocks by Yield
Actionable Conclusion (1): Shipping Carries Big Yields Again
The shipping and ports firms sourced 13 of the top 20 industrial stocks showing the biggest dividends. They were 10 for 10 at the top of the list.
Top yield dog was, DHT Holdings (NYSE:DHT) . The remaining nine shipping and ports outfits were: Frontline (NYSE:FRO) , Golar LNG Partners (NASDAQ:GMLP) , Navios Maritime (NYSE:NNA) , Ship Finance International (NYSE:SFL) , Teekay Tankers (NYSE:TNK) , Nordic American Tankers (NYSE:NAT) , Scorpio Tankers (NYSE:STNG) , and Seaspan (NYSE:SSW) . Finally, in 10th, Teekay Offshore Partners (NYSE:TOO) , completed the YChart calculated top 10 Industrials sector dogs by yield as of July 22.
Industrials Top 10 Price vs. Dividend Results Swamped The Dogs of The Dow
Relative strengths of the top 10 Industrials sector dogs graphed below by yield were plotted as of market close 7/22/2016 and compared to those of the Dow. Projected annual dividend history from $10k invested as $1k in each of the 10 highest yielding stocks and the total single share prices of those 10 stocks created the data points shown in green for price and blue for dividend.
Actionable Conclusions: (2) Industrials Upper 10 Mixed Down As (3) Dow Dogs Charged
Dividend from $10k invested as $1k in each of the industrials top 10 dogs fell slightly after June, while the aggregate single share price of the top 10 also decreased. Dividend dropped at a rate of 0.69% while total single share price fell 10%. The shipping and ports industry dogs are currently 10 (100%) of the top 10, and 14 (28%) of the top 50 in the sector by yield.
Dow dogs also charged, as aggregate single share price for those 10 rose 15.6% between June 28 and July 22. Meanwhile, annual dividend from $10k invested as $1K in each of the top 10 declined 7.4% to ignite the charge, according to IndexArb.
The Dow dogs overbought condition (in which aggregate single share price of the 10 exceeded projected annual dividend from $1k invested in each) expanded to a new record in July.
Actionable Conclusion (4): Dow Dogs Gained Most Overbought Status
The overhang inflated to $343 or 89% for August 2015. September brought some sanity back when the gap stood at $279 or 67%. October increases pushed the gap to $334 or 85%.
November's price over dividend gap went to $303 or 78%. December showed $302 or 78%. Come January 12, the overbought gap was down to $215 or 53%. February moves pushed the gap higher to $246 or 59%. March put the chasm at $293 or 73%. April saw JPMorgan Chase (NYSE:JPM) replace Merck (NYSE:MRK) in the top 10 to widen the gap to $394 or 102%. May's retreat was triggered by Intel (NASDAQ:INTC) and Merck returning to the top 10 in place of JPMorgan and Procter & Gamble (NYSE:PG). So, the overbought gap shrank to $357 or 93%. In June, the score settled to $344 or 89% but July broke out with a bang and soared to $486 or 136%.
This gap between high share price and low dividend per $1k invested defines the Dow overbought condition. Meaning these are low risk and low opportunity June average price per dollar of annual dividend is $28.10.
Compared to the Dow dogs, the Industrial top 10, while volatile, are far from overbought, maintaining their "normal" pattern of dividends above price.
In contrast to the Dow, Industrials Dog top 10 average price per dollar of annual dividend came in at $7.89 as of July 22, which is about 3.6 times less than the price of an annual dollar of Dow dividends.
Wall Street Wizards Distinguish Upside From Downside July Industrial Dogs
One-year median target price set by brokerage analysts multiplied by the number of shares in a $1k investment were used to compare 10 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 were considered best for the most accurate mean target price estimate.
Actionable Conclusions: (5) 10 Industrial Sector Dividend Dogs Cast Upsides of 17.71% to 77.57% per Analyst One-Year Targets & (6) Six Showed -1.83% to -10.25% Downsides
Dog Metrics Measured July Industrial 30 By Yield
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. Brokers Calculated (7) Average 13.45% Upsides; (8) & 19.58% Net Gains from Top 30 Industrials Dogs By July 2017
Top 30 sector dogs were graphed below by July 22, 2016 closing prices compared to prices projected by analyst mean price target estimates for the same date in 2017.
A hypothetical $1k 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 upsides to 2017.
Historic prices and actual dividends paid from $1k invested in each of the 30 highest yielding stocks and the aggregate single share prices of those 30 stocks divided by three created the data points for 2016. Projections based on estimated increases in dividend amounts from $1k invested in the 30 highest yielding stocks and aggregate one-year analyst target share prices from Yahoo Finance divided by three created the 2017 data points green for price and blue for dividends.
Analysts as reported by Yahoo Finance projected a 12% lower dividend from $10k invested in this group while aggregate single share price was projected to increase by 21% in the coming year (July to July).
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 was considered optimal for a valid projection estimate. Estimates provided by one analyst were not applied (n/a).
A beta (risk) ranking for each analyst rated stock was provided in the far right column on the above chart. A beta of one meant the stock's price would move with the market. Less than one showed lower than market movement. Higher than one showed greater than market movement. A negative beta number indicated the degree of a stocks movement opposite of market direction.
Actionable Conclusion (9): Analysts Alleged 10 Industrial Sector Dogs Would Net 21.92% to 81.55% By July 2017
Five of 10 top yielding Industrial sector dogs were verified as being among the top gainers for the coming year based on analyst one-year target prices. So this month, analysts graded the dog strategy as 50% accurate.
10 probable profit generating trades were revealed by Thomson/First Call as reported in Yahoo Finance for 2017:
Tsakos Energy Navigation (NYSE:TNP) was projected to net $815.51 based on dividends plus the median of annual price estimates from 10 analysts less broker fees. The Beta number showed this estimate subject to volatility 48% more than the market as a whole.
Scorpio Tankers Inc. was projected to net $719.13 based on the median of estimates from 16 analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 48% more than the market as a whole.
Navios Maritime Acquisition Corporation was projected to net $678.11, based on dividend plus median target price estimates from seven analysts less broker fees. The Beta number showed this estimate was subject to volatility 26% more than the market as a whole.
DHT Holdings, Inc. was projected to net $592.90 based on a median target price estimate from 12 analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 7% less than the market as a whole.
Teekay Tankers Ltd. was projected to net $532.22 based on the median target price estimate from 12 analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 131% more than the market as a whole.
Frontline was projected to net $398.09 based on estimated dividends plus mean target price estimate from six analysts less broker fees. The Beta number showed this estimate subject to volatility 114% more than the market as a whole.
Capital Product Partners L.P. (NASDAQ:CPLP) was projected to net $328.60 based on the low target price estimate from seven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 34% more than the market as a whole.
Pitney Bowes (NYSE:PBI) was projected to net $296.49 based on estimates from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 3% more than the market as a whole.
Teekay LNG Partners (NYSE:TGP) was projected to net $220.79 based on dividends plus the median target price estimate from six analysts less broker fees. The Beta number showed this estimate subject to volatility 32% more than the market as a whole.
Macquarie Infrastructure (NYSE:MIC) was projected to net $219.17, based on dividends plus a median target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 6% more than the market as a whole.
Average net gain in dividend and price was 48.02%. The average Beta number showed these estimates subject to volatility 43% more than the market as a whole.
Year to Date Price Histories Reveal Broker Upside Predictions
Price performance of Tsakos Energy Navigation & Caterpillar (NYSE:CAT), the two extreme ends of analyst Industrial sector projections, show diverging paths since the first of the year.
However, in contrast to the broker stated expectation, the favored Tsakos's price has dropped lower while the upward trending Caterpillar's history has climbed higher.
Momentum favors the reverse of forecaster predictions. What market or operating conditions will conspire to push future prices for these two industrial dogs in opposite directions?
Analysts Cast A 56.31% Gain From Five Lowest Priced Highest Yield Industrial Sector Dogs
10 small, mid, and large cap industrial equities were culled by yield from 50 industrial sector equity choices from here. Yield (dividend/price) results verified by Yahoo Finance did the ranking.
Actionable Conclusions: (10) Analysts Project 5 Lowest Priced of 10 Highest Yield To Produce 50.09% Vs. (11) 32.05% Net Gains From All 10 Industrial Dogs as of July 22, 2017
$5k invested as $1k in each of the five lowest priced stocks in the top 10 basic materials dividend kennel by yield were predicted by analyst one-year targets to deliver 56.31% more net gain than $5k invested as $500 in each of the top 10. The third lowest priced industrial dividend dog, Scorpio Tankers, was projected to deliver the best net gain of 71.91%.
Lowest priced five industrials dividend dogs for July 22 were Navios Maritime Acquisition Corporation, Teekay Tankers, Scorpio Tankers, DHT Holdings Inc., and Teekay Offshore Partners, whose prices ranged from $1.59 to $5.68.
Higher priced five industrials dividend dogs for July 22 were Frontline, Nordic American Tankers, Seaspan, Ship Finance International, and Golar LNG Partners, whose prices ranged from $8.18 to $18.92.
This distinction between five low-priced dividend dogs and the general field of 10 reflects the "basic method" Michael B. O'Higgins employed for beating the Dow. It mostly works here too.
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. It's 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.
Stocks listed above were suggested only as decent starting points for a small, mid, and large cap Basic Materials equities dog dividend stock investment research process in late-July 2016. These were not recommendations.
See my instablog for specific instructions about how to best use the dividend dog data featured in this article.
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.
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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 ycharts.com/screener; dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Photo:pluspets.net
Disclosure: I am/we are long INTC, CSCO, 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.