One in a monthly series of articles dating back to December, this article reports Dog dividend methodology as applied to one of eight major market sectors: 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 The Top Ten Sector Stocks
Two key metrics determined the yields that ranked services sector companies 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 services 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 five months of historic projected annual dividend history from Yahoo Finance with annual divided projections reviewed and adjusted for market realities.
Today's article finishes by assessing relative strengths of the services sector top ten dividend dogs as of February 24 vs. the Dogs of the Dow February 10. Annual dividends from $1000 invested in the ten highest yielding stocks in each sector or index were compared to the aggregate single share prices of the top ten stocks therein.
Services Sector's Dividend Dogs
The top ten services sector stocks paying the biggest dividends in January represented three industries. Top services sector stock, CPI Corp. (NYSE:CPY) was the only personal services firm in the top ten. October leader by yield, Alon Holdings (NYSE:BSI) was the only Grocery Stores firm. Eight of the top ten firms on the services top ten list by yield in January were from the shipping industry: Paragon (PRGN); Star (NASDAQ:SBLK); DHT Holdings (NYSE:DHT); Globus (NASDAQ:GLBS); Ship Finance (NYSE:SFL); Knightsbridge (VLCCF); Teekay Tankers (NYSE:TNK); Capital (NASDAQ:CPLP). February chilled the bear market spike in dividends when annual divided projections were reviewed and adjusted for market realities. The result was nearly a $1000 drop in projected dividends for this sector in a month.
February showed five industries represented in the top ten. (1) Shipping dominated with six firms: Baltic Trading (NYSE:BALT); Navios Maritime Partners (NYSE:NMM); Teekay Tankers; Globus Maritime; Knightsbridge Tankers; DHT Holdings. The remaining industries included: (2) Wholesale, Other as represented by Educational Development Corporation (NASDAQ:EDUC); (3) Staffing & Outsourcing Services was exhibited by Compass Diversified Holdings (NYSE:CODI); (4) Personal Services contributed StoneMor Partners (NASDAQ:STON); (5) Apparel Stores listed Christopher & Banks (NYSE:CBK).
Service top dog from November/December, Paragon, and January's CPI Corporation disappeared from the dog list by yield once their estimated annual dividends were adjusted for market realities. The action throughout the Services list turned bullish but Baltic Trading and Navios Maritime Partners atop the list the continued the pattern of speculative and barely substantiated dividend payers showing up to claim the yellow tint.
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.
Bullish vertical moves among the top ten since January 20 included the top two stocks by yield Baltic Trading which increased .223%; Navios Maritime Partners which increased .69%. Both took advantage as other firms divided estimates were downgraded. Educational Development share price increased 2.08%; Globus Maritime price increased 14.6%; DHT Holdings showed a 58.97% gain; Compass Diversified had a 4.55% price gain; Knightsbridge Takers showed a .608% increase; Christopher & Banks went up 22.75% in price.
Bearish moves for the same period were experienced by just two firms in the top ten: Teekay Tankers had a 0.44% price decline along with an annual estimated dividend cut of 26.67% from $0.60 to $0.44; StonMor Partners climbed into the top ten services sector dog list by yield after posting a 4.18% price decline.
Dividend vs. Price Results for Services vs. Dow Dogs
Below is a graph of the relative strengths of the top ten services sector dividend stocks by yield as of February 24, 2012 compared to those of the Dow index. 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 created the data points for each month shown in green for price and blue for dividends.
Conclusion: Services Sector Dogs Howl
The February services collection of 10 top dividend payers showed a 12.24% increase in aggregate single share prices over the five monthly points surveyed. Dividends from $1000 invested in each of the top ten declined 30.55% for that period.
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 Dow's 10 top dividend payers showed a 25.89% increase in aggregate single share prices over the five monthly points surveyed. Dividends from $1000 invested in each of the top ten Dow dogs declined 5.75% for that period.
The services sector top ten showed about $573.50 more annual dividends (with equally bigger risk) from $1000 invested in each stock at a $363 lower aggregate share price for the top ten dogs than those of the Dow as of February.
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.
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.