Technology Sector Dogs Turn Tail In March

by: Fredrik Arnold

This monthly report series since December used dog dividend methodology to analyze each of eight major market sectors: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and 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 Technology 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 technology 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 months of historic projected annual dividend history from Yahoo Finance along with annual dividend 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.

Technology Dividend Dogs

Click to enlarge

Top ten technology sector stocks showing the biggest dividend yields in March represented seven industries. Top technology sector stock MIND C.T.I., Ltd. (MNDO) was the only information technology services firm in the top ten. Telecom New Zealand (NZT) at number two was one of three telecom services - foreign firms. The other two foreign telecoms were Telefonica (TEF), and France Telecom (FTE). The remaining five industries and their representative firms were: telecom services - regional , Otelco (OTT); telecom services - domestic, Frontier Communications (FTR), and Windstream Corporation (WIN); diversified communications services, RRSat Global (RRST); internet information providers, SouFun (SFUN); wireless communications, Partner Communications (PTNR).

Vertical Moves in Technology Dividend Dog Stocks

Going back four months, Cimitron (CIMT) claimed the top of this list by yield in October and stayed there into January. As of February 25, Otelco claimed the yellow tint as top techno dog due mostly to attrition as former lead dog Cimitron dropped out as its forward looking dividend prospects faded. In March information technology services firm MIND C.T.I., Ltd. took on the yellow tint for top dog.

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.

Bullish vertical moves made since February 24 included new dog stock by yield RRSat Global Communications Network whose annual dividend was estimated at $.46; IDT Corporation (IDT) had a 7.41% price bump to depart the top ten by yield; SouFun price increased 2.54% while it's estimated dividend nearly doubled to rocket into the top ten. France Telecom estimated annual dividend of $1.37 dialed it into the top techno dogs this Month. Consolidated Communication Holdings showed a 2.47% gain to depart the top ten.

Bearish moves for the same period were experienced by seven firms in the top ten: MIND C.T.I. price dropped 26.42% while it's dividend was bumped 20% to $.24; Otelco share price decreased 5.5%; Cellcom Israel (CEL) dropped out of the top ten techno dog pound by yield after posting a 14.18% price decline combined with a $.73 or 49% dividend cut. Telefonica dropped 9.97% in price; Partner Communications sagged 6.12% in price; Frontier Communications price went down 7.11%; Windstream Corporation experienced a 5.43% price drop.

Dividend vs. Price Results for Technology Sector vs. Dow Dogs

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

Conclusion: Technology Sector Dogs Turn Tail

The March technology group of 10 top dividend payers showed a 8.5% decrease in aggregate single share prices since February 24. Dividends from $1k invested in each of the top ten climbed 12.48% for that period. The technology bear is back and chasing dogs!

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 technology top ten dogs showed $650 or 164.65% more dividends (with equally bigger risk) at a $303 or 75.17% lower aggregate share price than those of the Dow.

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, INTC, JNJ.

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.