Industrial Goods Sector Dogs Jump In March

by: Fredrik Arnold

In December this monthly report series began applying dog dividend methodology to each of eight major market sectors. In alphabetical order the sectors were: basic materials; consumer goods; financial; healthcare; industrial goods; services; technology; utilities.

A ninth sector, conglomerates, according to Yahoo Finance, contained just eight firms, five of which paid dividends. Thus the reporter declined to apply dog metrics to such a small group.

Dogs of the Index Metrics Selected Ten Top Industrial Goods Stocks by Yield

Two key metrics determined the yields that ranked these 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 selected portfolios of five or ten stocks in any one index or sector by yield to trade. They awaited the results from their investments in the lowest priced, highest yielding stocks selected and prayed that the price of every stock they now owned climbed 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 high yielding stocks whose prices increased (and whose dividend yields therefore decreased) could be sold off once a 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 healthcare sector companies was sorted by yield as of April 5 using 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 along with annual divided projections adjusted for market realities.

Thereafter, this article assessed the relative strengths of the sector top ten dividend dogs as of April 5 vs. the Dogs of the Dow March 13 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 in each.

Industrial Goods Dividend Dogs

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Ten industrial goods sector stocks paying the biggest dividends in March represented seven industries. Top industrial goods sector stock Veolia Environement (VE) was one of two waste management firms in the top ten. The other was Waste Management (WM). Two residential construction firms were included: MDC Holdings (MDC); Gafisa (GFA). The ten also included two aerospace & defense products & services firms: Lockheed Martin (LMT); Raytheon Company (RTN). The remaining four in the top ten represented one industry each: Highway Holdings (HIHO), metal fabrication; Skyline (SKY), manufactured housing; CRH public limited company (CRH), cement; KSW Inc.(KSW), general contractors.

Vertical Moves by Industrial Goods Dividend Dog Stocks

Going back four months, Xinyuan Real Estate (XIN) claimed the top of this list by yield and stayed there throughout Q4 2011, then Veolia Environement rose from second place in Q4 to take the lead by yield in January by virtue of a XIN 35.2% price increase from $1.76 to $2.35 in one month sending XIN to the ninth slot. In March Veolia still held the yellow tinted top spot and Xinyuan Real Estate dropped out of the top thirty by yield to the thirty sixth slot.

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

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Bullish vertical moves made since February 24 included the top stock by yield Veolia Environnement whose share price increased 21%; Highway Holdings Limited had a 3.6% price bump; CRH public limited company solidified a place as a top ten dog when Yahoo hyped its forward looking dividend estimate for the firm; Lockheed Martin showed a .6925% gain; M.D.C Holdings Inc. rolled out a .874% price gain; KSW Inc. showed a 3.28% increase; Raytheon soared into the top ten as its price increased 3.09% due to propulsion from a estimated annual dividend flying 16.28%.

Bearish moves for the same period were experienced by just three firms in the top ten: Skyline Corporation price slumped 12.17%; Gafisa SA posted a 25.5% price decline; Waste Management dropped 1.49% in price.

Dividend vs. Price Results for Industrial Goods vs. Dow Dogs

Below is a graph of the relative strengths of the top ten industrial goods dividend sector stocks by yield as of April 5, 2012 compared to those of the Dow. Using six 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.

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Conclusion: Industrial Goods Sector Dogs Jump

The March industrial goods collection of 10 top dividend yielding equities showed a 31.64% increase in aggregate single share prices over the six monthly points surveyed. Dividends from $1k invested in each of the top ten declined 21.5% for that period. In the month past industrial goods price jumped 6.32% while dividends also popped 1.5%

Meanwhile, the Dow index moved back to near convergence as dividends from $1k invested in the top ten came to within $8 of their aggregate total single share prices in March. As of April 5 industrial goods top ten dogs showed $147 or 37.3% more dividends (with equally bigger risk) at a $149 or 37% lower aggregate share price than those of the Dow.

A monthly summary will soon compare results in yield and price for all eight sectors reported in this series: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities.

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

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.