Bargain Energy Sector Dogs? Aren't They All?

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Includes: ALJ, BP, BPT, CVI, HFC, HP, OXY, PBA, RDS.A, SJT, SNP, STO, TRGP, VET, WNR
by: Fredrik Arnold

Summary

Ten Energy Sector leaders averaged 8.7% annual yields and charged since June, but Dow dogs were mixed up. Yes, the last dog report on Energy was back in June.

Yield by ALA.TO, ALJ, SNP, BP, TRGP, RDS.A, VSN.TO, SJT, CVI, & SDLP ranged from 6.42% to 12.64% as of November 18.

Upsides averaged 12.74% per analyst 1yr. targets while gains averaged 16.8% for CVI; BPT; HFC; OXY; BP; STO; PBA; SNP; TOT; VET. Analysts cast HP, & WNR as -13.5% losers.

Thirty energy firms averaged 3.3% upsides and 7.6% net gains. Top ten predicted gains ranged from 9.45% to 25.22%.

Analysts of ten energy sector stocks by yield predicted 16.57% LESS net gain from $5k invested in the lowest priced five than from $5K put in all ten.

What is a Dividend Dog?

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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November Energy Sector SML Dogs

Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of November 18, 2016 for Small, Mid, & Large cap energy 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.

Fifty On 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; (3) net gain results based on analyst 1 yr. 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 Sorted Energy Stocks by Yield

Actionable Conclusion (1): BPT Boasts Top Yields As Refiners and Marketers Post Three In Top Ten For November

Refiners & marketers, midstream, and integrated industries each sourced three of the top ten energy stocks by dividend yields for November. One top ten yield dog came from exploration and production (E&P) industry.

Top two energy yield dogs, BP Prudhoe Bay (NYSE:BPT) [1] and CVR Energy (NYSE:CVI) [2] led the refiners & marketers (R&M). The remaining R&M placed ninth, Alon USA Energy (NYSE:ALJ) [9]. The lone E&P firm was third, San Juan Basin Royalty Trust (NYSE:SJT) [3].

The top midstream firm placed fourth, Veresen (VSN.TO) [4]. The remaining two top yield midstream firms placed sixth, and tenth: Targa Resources (NYSE:TRGP) [6], and AltaGas (ALA.TO) [10].

Finally, three integrated energy firms placed fifth, seventh, and eighth, Royal Dutch Shell (NYSE:RDS.A) [5], BP p.l.c. (NYSE:BP) [7], and China Petroleum (NYSE:SNP) [8] to complete the top ten energy sector dogs by yield list as of November 18.

Energy Top Ten Price vs. Dividend Results Were Fully Charged While Dow Mixed Up

Relative strengths of the top ten energy sector dogs graphed below by yield were plotted as of market close 11/18/2016 and compared to those of the Dow. Projected annual dividend history 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 dividend.

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Actionable Conclusions: (2) Energy Top Ten Charged As (3) Dow Dogs Mixed Up

Dividend from $10k invested as $1k in each of the energy top ten dogs tumbled into November, while their aggregate single share price rose. Since June, dividend descended at a rate of 29% while total single share price inclined 38%. These moves reflected the energy charge.

Dow dogs however, merely mixed up after June. Projected annual dividend from $10k invested as $1K in each of the top ten rose 1.3%. At the same time, aggregate single share price increased 8.5% to shape the mix-up.

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The Dow dogs overbought condition (in which aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each) expanded since June.

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

November 2015 price over dividend gap was $303 or 78%. As of March 2016, the chasm was $293 or 73%.

June expanded the distance between price over dividend up to $391 or 106% but a new 2016 record was made in November as the gap reached $451 or 124%.

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 November average price per dollar of annual dividend is $27.35.

Compared to the Dow dogs, the Energy top ten, while volatile, are far from overbought, expanding their "normal" pattern of dividends above price.

In marked contrast to the Dow, Energy Dog top ten average price per dollar of annual dividend came in at $12.76 as of November 18, that is about 47% the price of an annual dollar of Dow dividends.

Wall Street Wizards Predicted Upside/Downsides For November Dogs

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 2016 out of 30 selected by yield. The number of analysts providing price estimates was noted after the name for each stock on the second chart below. Three to nine analysts were considered best for the most accurate mean target price estimate.

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Actionable Conclusions: (4) Ten Energy Sector Dividend Dogs Showed Upsides of 3.37% to 22.42% per Analyst 1 yr. Targets & (5) Two Cast 10.62% & 20.5% Downsides

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Dog Metrics Sorted Energy Stocks By Yield For November

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 Predicted (6) Average 3.27% Upsides; (7) & 7.56% Net Gains from Top 30 Energy Dogs By November, 2017

Top thirty sector dogs were graphed above to display November 18, 2016 closing prices compared 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 upsides 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.

Analysts as reported by Yahoo Finance projected a 2.6% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 3.9% in the coming year (November to November).

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 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.

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Actionable Conclusion (8): Analysts Asserted 10 Energy Sector Dogs Could Net 9.4% to 25.22% By November, 2017

Four of ten top yielding energy sector dogs were verified as being among the top gainers for the coming year based on analyst 1 year target prices. So this time analysts graded the dog strategy as 40% accurate.

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

Vermilion Energy (NYSE:VET) was projected to net $252.17 based on estimated dividends plus mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 36% less than the market as a whole.

Total was projected to net $240.31 based on the target price estimate from seven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 16% less than the market as a whole.

China Petroleum was projected to net $234.86 based on the target price estimate from two analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 46% more than the market as a whole.

Pembina Pipeline (NYSE:PBA) was projected to net $189.33 based on dividends plus the median of annual price estimates from five analysts less broker fees. The Beta number showed this estimate subject to volatility 26% less than the market as a whole.

Statoil (NYSE:STO) was projected to net $165.03, based on dividend plus median target price estimates from six analysts less broker fees. The Beta number showed this estimate was subject to volatility 2% less than the market as a whole.

BP p.l.c. was projected to net $151.22 based on the median of estimates from ten analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 40% more than the market as a whole.

Occidental Petroleum (NYSE:OXY) was projected to net $138.60 based on the lowest target price estimate from twenty-four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 45% less than the market as a whole.

HollyFrontier (NYSE:HFC) was projected to net $106.87 based on dividends plus the median target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 8% more than the market as a whole.

BP Prudhoe Bay was projected to net $106.38, based on dividends alone less broker fees. The Beta number showed this estimate subject to volatility 81% opposite the market as a whole.

CVR Energy was projected to net $94.48 based on dividends only less broker fees. The Beta number showed this estimate subject to volatility 32% more than the market as a whole.

Average net gain in dividend and price was 16.79% The average Beta number showed these estimates subject to volatility 18% less than the market as a whole.

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Actionable Conclusion (9): (Bear Alert) Analysts Predicted Two Energy Dogs To Show Net Losses of 8.5% & % 18.43% By November, 2017

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

Helmerich & Payne (NYSE:HP) was projected to lose $85.20 based on dividend and a median target price estimate from twenty-eight analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 84% opposite the market as a whole.

Western Refining (NYSE:WNR) was projected to lose $184.28 based on dividend and a median target price estimate from eleven analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.

The average net loss in dividend and price with broker fees included was 13.47% on $2k invested as $1k in each of these dogs. The beta number showed this estimate subject to volatility 93% less than the market as a whole.

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Energy Sector Year To Date Prices Support Analyst Outlook

A year to date modest upside price gain for Western Refining predicted as a "loser" by analysts, is in still markedly shallow compared to the robust upside price momentum for the analysts upside energy star stock, Vermilion Energy. Upside momentum supports these forecaster predictions.

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Dog Metrics Found 16.6% LESS Gains From Five Lowest Priced Highest Yield Energy Sector Dogs

Ten small, mid, and large cap energy equities were culled by yield from 50 common stock choices from here. Yield (dividend / price) results verified by Yahoo Finance did the ranking.

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Actionable Conclusions: (10) Analysts Project 5 Lowest Priced of Ten Highest Yield To Fetch 7.87% VS. (11) 9.44% Net Gains From All Ten Energy Dogs as of November 18, 2017

$5000 invested as $1k in each of the five Lowest priced stocks in the top ten energy dividend kennel by yield were predicted by analyst 1 year targets to deliver 16.57% LESS net gain than $5,000 invested as $500 in each of the top ten. The highest priced energy dividend dog, China Petroleum , was projected to deliver the best net gain of 23.49%.

Lowest priced five basic materials dividend dogs for November 18 were: San Juan Basin Royalty Trust; Alon USA Energy; Veresen; CVR Energy; BP Prudhoe Bay, with prices ranging from $6.19 to $21.50.

Higher priced five basic materials dividend dogs for November 18 were: AltaGas; BP p.l.c.; Royal Dutch Shell; Targa Resources; China Petroleum, whose prices ranged from $32.69 to $68.35

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. It usually 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. 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.

Stocks listed above were suggested only as decent starting points for a small, mid, and large cap energy equities dog dividend stock investment research process in mid-May, 2016. These were not recommendations.

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

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.

Two energy sector dividend pups were chosen for the first 52 Dogs of the Week (DOTW) found on my Dividend Dog Catcher premium site. Click here to subscribe or get more information.

It's about time to make investing fun again. For a free copy of the monthly top dogs, the 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; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo from: pinterest.com

Disclosure: I am/we are long CSCO, 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.