February Healthcare Sector Dogs Sit Up

by: Fredrik Arnold

This monthly report series began applying dog dividend methodology to each of eight major market sectors in December. These sectors are, in alphabetical order: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities.

The ninth sector, conglomerates, according to Yahoo Finance, contained just eight firms, five of which pay dividends. Thus the reporter declined to apply dogs of the index metrics to such a limited universe, declaring. "such a task is comparable to a dog show judge trying to evaluate a Chihuahua based on St. Bernard conformation standards."

Dogs of the Index Metrics Used to Select Top Ten Sector Stocks

Two key metrics determined the yields that ranked index or sector dog stocks: (1) stock price; (2) annual dividend. Dividing the annual dividend by the price of the stock declared the percentage yield by which each dog stock was ranked. Investors select portfolios of five or ten stocks in any one index or sector by yield to trade. They await the results from their investments in the lowest priced, highest yielding stocks they selected and pray that the price of every stock they now own climbs higher (having locked in a high yield percentage at purchase).

This Dogs of the Index strategy, popularized by Michael B. O'Higgins in the book "Beating The Dow" (HarperCollins, 1991), revealed how low yielding stocks whose prices increase (and whose dividend yields therefore decrease) can be sold off once each year to sweep gains and reinvest the seed money into higher yielding stocks in the same index.

Comparative Methods Used

First, the entire list of financial sector companies was sorted by yield as of February 24 using Ycharts.com to reveal the top thirty. Market performance of these thirty selections was then reviewed using four months of historic projected annual dividend history from Yahoo Finance with annual divided projections reviewed and adjusted for market realities.

Thereafter, today's article goes on to describe how the relative strengths of the healthcare sector top ten dividend dogs was assessed as of February 24 vs. dogs of the dow January 10 stock list. Annual dividends from $1000 invested in the ten highest yielding stocks in the sector were compared to the aggregate single share prices of the top ten stocks in the sector.

Healthcare Dividend Dogs

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The top ten healthcare sector stocks paying the biggest dividends in January represented six industries. Top healthcare sector stock PDL BioPharma (NASDAQ:PDLI) was the only biotechnology firm in the top ten. Similarly,NeoStem (NBS), was the only specialized health services firm. However now five drug manufacturers - major firms appeared as top ten dogs: AstraZeneca Group (NYSE:AZN); Eli Lilly (NYSE:LLY); GlaxoSmithKline (NYSE:GSK); Sanofi (NYSE:SNY); Merck (NYSE:MRK). Daxor (NYSEMKT:DXR) represented the medical instruments & supplies industry. Psychemedics (NASDAQ:PMD) appeared as a medical laboratories and research firm. The remaining one in the top ten was PetMed Express (NASDAQ:PETS), a drug delivery firm.

Vertical Moves by February's Healthcare Dogs

Going back four months, NeoStem rose from second place in October to take the lead by yield in November and December by virtue of a 13.2% price drop from $.68 to $.59 over two months. January found PDL Biopharma back on top by a mere .02% yield. PDL remained tinted yellow at the top in February.

Color code shows: (Yellow) firms listed in first position at least once between November 2011 and February 2012; (Cyan Blue) firms listed in tenth position at least once between November 2011 and February 2012; (Magenta) firms listed in twentieth position at least once between November 2011 and February 2012; (Green) firms listed in thirtieth position at least once between November 2011 and February 2012. Duplicates are depicted in color for highest ranking attained.

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Bearish moves for the same period were experienced by six firms in the top ten: NeoStem had a 16.2% price decline along with an annual estimated dividend cut to $.04 (which could be $.00 for all the Yahoo information available); AstraZeneca Group climbed in to the top ten in healthcare by yield after posting a 4.11% price decline combined with a 70.6% estimated annual dividend push. GlaxoSmithKline declined .513%; Lilly had a 1.9% price sag; Merck saw its price drop 2.55%. Bullish vertical moves made since January 20 included the top stock by yield PDL BioPharma whose share price increased 1.86%; Psychemedics Corporation price increased 2.16%; Daxor showed a 5.56% gain; PetMed Express had a 10.38% price gain; Sanofi showed a 4.88% increase; January's ninth position dog, Nordion (NYSE:NDZ) exited the top ten as a result of its 11.5% price gain.

Dividend vs. Price Results vs. Dow Dogs

Below is a graph of the relative strengths of the top ten healthcare dividend sector dogs by yield as of February 24, 2012, compared to those of the Dow. Using four months of historic projected annual dividend history from $1000 invested in the ten highest yielding stocks each month and the total single share prices of those ten stocks creates the data points for each month shown in green for price andiblue for dividends.

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Conclusion: Healthcare Dogs Sit Up

The February healthcare collection of top ten dividend payers shows higher market performance in price over the five monthly points surveyed. However the projected dividends from $1000 invested in each of the top ten declined for that same period confirming a bull trend.

Meanwhile, the Dow index moved beyond convergence as dividends from $1000 invested in the top ten sank lower than aggregate total single share prices in February. The healthcare sector top ten show about $154 more annual dividends (with equally bigger risk) from $1000 invested in each stock at a $212 lower aggregate share price for the top ten dogs than those of the Dow as of February 24.

At the end of each month, two summaries will conclude this new series of articles by showing comparative results of yield and price for all eight sectors reported: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities.

Disclosure: I am long T, VZ, JNJ, INTC, CVX.

Disclaimer: This article is for informational and educational purposes only and shall 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 are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.