Top Utility Dog For Gains Is NextEra Per Broker November Targets

|
Includes: APU, BEP, CRIUF, ENGIY, EONGY, ETR, EXC, HNP, JE, MCD, NEP, PEGI, SPH, SPKE, TERP, VNRCF
by: Fredrik Arnold

Summary

Analyst 1-year targets revealed ten top price upsides averaging 16.3% with net gains of 22.76%. Thirty Utilities upsides averaged 5.1% while net gains were 11.06%.

Analysts forecast 1-year gains of 7.56% to 44.09% for CRIUF, HNP, TERP, APU, ETR, BEP, SPKE, SPH, PEGI, and NEP tops. One loss of 6.16% was predicted for VNRCF.

While small cap utilities claimed top slots by upside and gains, a small cap also led the pack by yield. SPH showed yield of 12.33% as of November 11.

Fifty Utilities priced over $5, ranged in yield from 3.93% EXC, JE, EONGY, PEGI, APU, ENGIY, CRIUF, TERP, HNP and SPH, mixed up as Dow dogs charged bullishly.

$5k invested in the lowest priced five of the ten top yield utilities dividend dogs showed 27.02% LESS net gain than $5k invested in all ten.

The Dividend Dogs Rule

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."

Click to enlarge

November SML Utilities Dogs

Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of November 11, 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; and 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 few years, the series expanded to report (1) dividend yield; (2) price upside; and (3) net gain results based on analyst 1-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 Gauged Utilities Stocks by Yield

Click to enlarge

Actionable Conclusion (1) Most November Utilities Are Diversified

Of ten stocks with the biggest utilities sector dividend yields after October, per YCharts, 5 represented the diversified industry; 2 independent producers; 2 gas; and 1 electric.

Tops by yield was the best of two gas utilities, Suburban Propane Partners (NYSE:SPH) [3], the other placed sixth, AmeriGas Partners (NYSE:APU) [6].

Of five diversified firms, Huaneng Power (NYSE:HNP) [2] was tops. The four other diversified firms placed fifth, eighth, and tenth: Engie SA (OTCPK:ENGIY) [5], E.ON (OTCQX:EONGY) [8], Just Energy Group (NYSE:JE) [9], and Exelon (NYSE:EXC) [10].

The highest of two independent producers was third, TerraForm Power (NASDAQ:TERP), while the other independent placed seventh, Pattern Energy Group (NASDAQ:PEGI) [7]. Finally, one electric utility in fourth place, Crius Energy (OTC:CRIUF) [4], completed the November utilities top ten list.

Utility Dividend & Price Results Were Unlike Dow Dogs

Graphs per market close 11/11/16 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.

Click to enlarge

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

After October, dividend from $10k invested as $1k in each of the top ten utilities rose 10.6% while aggregate single share price increased 5.14% to create the mix-up.

Click to enlarge

Dow dogs charged bullishly, as dividend fell while price rose after October to expand their overbought condition. Projected annual dividend from $10k invested as $1k in each of the top ten fell 1.3%. At the same time, aggregate single share price increased 15.2% to set the charge.

The Dow dogs overbought condition (in which aggregate single share price for the ten exceeded projected annual dividend from $1k invested in each of the ten) moved to a new record gap.

Actionable Conclusion (4): Dow Dogs Expand In Overbought Mode

As of January, the overbought gap was $215 or 53%. February it was $230 or 55%. March saw $370 or 94%, and April expanded the gap to $400 or 104%. May dropped the gap to $358 or 94% and, in June, the gap stayed at $354 or 94%. July saw the gap at $446 or 125%, and the August gap grew to $487 or 134%. In September, price and dividend shrank to $354 or 93%. October pushed the gap up to $369 or 98%. November had McDonald's (NYSE:MCD) in the top ten to widen the margin to $488, or 131%, a new record.

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 Dow dog stocks. The Dow top ten average price per dollar of annual dividend was $27.54.

Conversely, the utilities dog chart shows them as increasingly higher in risk but also potentially as higher gain pups than the Dow. The utility top ten average price per dollar of annual dividend as of November 17 was $10.67.

Wall Street Wizard Wishes

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.

Click to enlarge

Actionable Conclusion (5) Ten November Utilities Dividend Upsides Ranged 0% to 40.53% While (6) One At The Low End Dropped -9.91%.

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. Brokers Predict Average (7) 5.11% Upsides & (8) 11.06% Net Gains By Top 30 Utilities Dogs By November 2017

Click to enlarge

Top thirty dogs from the utilities sector were graphed above to show relative strengths by dividend and price as of November 11, 2016 and those projected by analyst mean price target estimates to the same date in 2017.

A hypothetical $1,000 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 $1,000 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.

A 3% lower dividend was projected from $10k invested in this group as aggregate single share price was predicted to increase by 7% in the coming year. Notice the analysts are no longer predicting an overbought condition for the utilities as of 2017. They predict aggregate single share price to remain lower 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 chart. 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 Calculated Ten Utilities Dogs To Net 7.56% to 44.09% by November, 2017

Six 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. Thus, the dog strategy for this sector as graded by Wall St. wizards was only 60% accurate this month.

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

Click to enlarge

NextEra Energy Partners (NYSEMKT:NEP) was projected to net $440.86 based on estimates from fourteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 92% more than the market as a whole.

Pattern Energy Group Inc. was projected to net $434.60 based on dividends plus a median target price estimate from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 27% more than the market as a whole.

Suburban Propane Partners was projected to net $284.73 based on dividends plus the median target price estimate from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 27% less than the market as a whole.

Spark Energy (NASDAQ:SPKE) was projected to net $272.68 based on the median price estimate from five analysts plus dividends less broker fees. A Beta number was not available for SPKE.

Brookfield Renewable (NYSE:BEP) was projected to net $262.91 based on dividends plus the median target price estimate from eight analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 74% less than the market as a whole.

Entergy (NYSE:ETR) was projected to net $144.22 based on dividends plus a median target price estimate from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 38% less than the market as a whole.

AmeriGas Partners was projected to net $129.46, based on dividend plus median target price estimates from six analysts less broker fees. A Beta number was not available for APU.

TerraForm Power was projected to net $119.24 based on estimates from seven analysts plus dividends less broker fees. A Beta number was not available for HNP.

Huaneng Power was projected to net $111.44 based on estimates from thirteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 19% more than the market as a whole.

Crius Energy was projected to net $75.64 based on no estimates from analysts, just dividends less broker fees. The Beta number showed this estimate subject to volatility 62% less than the market as a whole.

The average net gain in dividend and price was 22.76% on $10k invested as $1k in each of these ten utilities dogs. This gain estimate was subject to average volatility 9% less than the market as a whole.

Actionable Conclusion (10): (Bear Alert) Analysts Saw A Utility Dog Net Loss Of 6.16% By 2017

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

Click to enlarge

Valener (OTC:VNRCF) was projected to lose $61.58 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 55% less than the market as a whole.

Does Price History Support Analyst Forecasts for Top and Bottom Utility Dogs?

Click to enlarge

Six-month 13.41% upside price performance for Valener, the big Utility "loser" is up 10.49%, while a -16.21% downside price history was graphed for this month's analysts upside utility star stock, NextEra Energy Partners. Price momentum emphatically contradicts these Wall Street wizard prognostications.

Dog Metrics Found No Bargains In 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) Produce 10.17% Vs. (12) 13.93% Net Gains by All Ten As Of November 11, 2017

Click to enlarge

$5,000 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 27.02% LESS net gain than $5,000 invested as $.5k in all ten. The sixth lowest priced utility, Pattern Energy Group, was projected to deliver the most net gain of 43.46%.

Lowest priced five utilities dividend dogs for November 11 were: Just Energy Group; E.ON; Crius Energy; TerraForm Power; and Engie, with prices ranging from $6.64 to $12.72.

Higher priced five utilities dividend dogs for November 11 were: Pattern Energy Group; Huaneng Power; Suburban Propane Partners; Exelon; and AmeriGas Partners, whose prices ranged $19.34 to $44.16.

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. Here this same technique was used to find 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.

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 November 16, 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.

The "basic method" analyst accuracy score for top ten monthly pay stocks by yield between November 12, 2015 and November 11, 2016 was four losses, one unchanged, and five gains. Three low price dogs were gainers for the year. The other two low price dogs were losers. This group of Utilities showed just a 50% positive result since 2015, confirming Utilities as a troubled sector for investors.

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 apply the dividend dog data featured in this article and this instablog to aid your safe investing. - Fredrik Arnold

Stocks listed above were suggested only as reference points for a small, mid, and large cap utility equities dividend stocks as of October, 2016. These were not recommendations.

Four of these utilities sector dividend pups qualify as valuable catches! They are listed with the now 52 Dogs of the Week found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information.

For a free copy of 4 previous quarterly reports and the dog of the year winner, 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. Dog photo: millieswolfheart.co.uk

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