This monthly series since December has applied dog dividend methodology to each 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 the task is comparable to judging a Chihuahua based on St. Bernard standards.
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 utilities 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.
Thereafter, the relative strengths of the utilities sector top ten dividend dogs were assessed as of February 24 vs. the Dogs of the Dow index February 10 stock list. Annual dividends from $1000 invested in the ten highest yielding stocks in the sector and index were compared to the aggregate single share prices of the top ten stocks therein.
Utilities Dividend Dogs (Click tables to enlarge)
The top ten utilities sector stocks paying the biggest dividends in January represented four industries: five gas companies; one electric firm; two diversified companies; two foreign firms.
The same four industries were tops in February. Four gas firms were clustered at or near the top of the list: Inergy, L.P. (NRGY); Niska Gas Storage (NYSE:NKA); Suburban Propane (NYSE:SPH); Amerigas Partners (NYSE:APU). Two Electric Utilities were listed: Atlantic Power Corporation (NYSE:AT); Pepco Holdings, Inc. (NYSE:POM). Three Diversified Utilities made the list: TransAlta Corporation (NYSE:TAC); Otter Tail Corporation (NASDAQ:OTTR); Exelon Corporation (NYSE:EXC). One Foreign Utility was listed: CPFL Energia (NYSE:CPL).
Vertical Moves in Utilities Dividend Dog Stocks
Spending months at number two, Inergy, L.P. finally got the yellow tint as top dog 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.
Click to enlargeBullish vertical moves made since January 20 did not include either of the top two stocks by yield. In fact only three of the utility top dogs mustered price gains for the period. Atlantic Power Corporation showed a 0.88% gain while its dividend increased $.02 or 1.76%; Amerigas Partners price climbed 8.02%; TransAlta Corporation stock price climbed 5.02% and its annual projected dividend was jacked $.03 or 2.65%.
Bearish moves for the same period were experienced by seven firms in the utility top ten dog pound: Inergy, L.P. had a 20.02% price decline and a $.40 dividend cut of 14.18%; Niska Gas Storage Partners fell out of the top utility dog slot by yield after posting a 1.45% price decline combined with a $.40 or 28.57% dividend cut; Suburban Propane Partners dropped 1.375% in price; Partner Communications sagged 13.08% in price; Otter Tail Corporation price went down .864% propelling it into the top ten dogs by yield; Pepco Holdings, Inc. also experienced a .8% price drop and similar propulsion into the top ten utilities dog pound; Exelon too dropped in price .228% to join the top ten.
Dividend vs. Price Results for Utilities Sector vs. Dow Dogs
Below is a graph of the relative strengths of the top ten utilities dividend sector 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: Utilities Sector Dogs Settle
The February utilities group of ten top dividend payers showed a 1.75% increase in aggregate single share prices over the five monthly points surveyed. Dividends from $1000 invested in each of the top ten declined 5.88% 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. 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 utilities sector top ten showed about $322 more annual dividends (with equally bigger risk) from $1000 invested in each stock at about $190 lower aggregate share price for the top ten dogs than those of the Dow in 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.