This end of month installment summarizes a series of eight articles that compared relative strengths of stock sectors by (1) yield and (2) dividend vs. price gaps using projected annual dividends from $1,000 invested in the ten highest yielding stocks in each sector for March. Results for the Dow index were included as a baseline standard. This effort was part of an ongoing one to respond to the question, "which dividend stocks were good, better, best, bad, or ugly, in March?"
The research was also in keeping with Yale professor Robert Shiller's observation: "People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes." Thus this article graphically depicted the gyrations.
Dogs of the Index Metrics Selected Ten in Each Group
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) could be sold off once each year to sweep gains and reinvest seed money into higher yielding stocks in the same index.
Ten dogs for each sector displayed their annual dividends from $1,000 invested in those highest yielding stocks in the sector and index compared to the aggregate single share prices of those top ten stocks in March to produce the summary graphs shown below:
Ten basic materials stocks paying the biggest dividends in March mostly represented the oil and/or gas industry: Whiting (WHX); Ferrellgas (FGP); Enerplus (ERF); BreitBurn (BBEP);Sandridge Permian Trust (PER); Pengrowth Energy (PGH). Only four of the top ten basic materials firms do not mention oil and gas in their industry description: Great Northern (GNI); Oxford (OXF); Rhino (RNO); CVR Partners (UAN).
Click to enlarge.
Consumer goods top ten stocks paying the biggest dividends in March, represented five industries. Top stock Standard Register (SR) was from the Office Supplies Industry. Second dog, Vector (VGR) was from the cigarettes industry. Three of the top ten basic materials firms were in the same cigarettes industry group, Altria (MO), and Reynolds (RAI) were the others. Two textiles - apparel clothing firms were: Cherokee (CHKE), and Crown Crafts (CRWS). The balance of the top ten were: personal products industry, CCA Industries (CAW); auto parts, Douglas Dynamics (PLOW); home furnishings and fixtures, Deer Consumer Products (OTC:DEER).
Ten financial sector dogs showing the biggest dividend yields in March represented seven industries. Top financial sector stock BBVA Banco (BFR) was the lone foreign regional bank. Armour (ARR) in second place was one of six REITs in the top ten. Four, American Capital (AGNC), Armour , Two Harbors (TWO), and CYS Investments (CYS), are residential REITs; Chimera (CIM) is a diversified REIT; Resource (RSO) is a retail REIT. The remaining three industries were represented by MCG Capital Corporation (MCGC), financial asset management, Invesco (IVR), mortgage investment, and Arlington Asset Investment (AI), investment brokerage.
Ten healthcare sector stocks with the biggest dividend yields in March represented six industries. Top healthcare sector stock PDL BioPharma (PDLI) was the only biotechnology firm in the top ten. Five drug manufacturers - major firms appeared as top ten dogs: AstraZeneca Group (AZN); GlaxoSmithKline (GSK); Eli Lilly (LLY); Sanofi (SNY); Novartis (NVS). The medical instruments & supplies industry was represented by Daxor (DXR). Psychemedics (PMD) appeared as a medical laboratories and research firm. PetMed Express (PETS), represented drug delivery firms. Advocat (AVCA) completed the March dog list as a long-term care facility firm.
Ten industrial goods sector stocks paying the biggest dividends in March represented seven industries. Top dog industrial goods sector stock Veolia Environement (VE) was one of two waste management firms in the 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.
Ten services sector stocks showing the biggest dividend yields in March represented six industries. Top dog, Alon Holdings - Blue (BSI) was the only grocery store firm in the top ten. The shipping industry was represented by five firms: Knightsbridge (VLCCF); Capital Product Partners (CPLP); Navios Maritime Partners (NMM); Euroseas (ESEA); Diana Containerships (DCIX). The remaining four industries included: wholesale, other represented by publisher of children books, Educational Development Corporation (EDUC); staffing & outsourcing services was posted by Compass Diversified Holdings (CODI); personal services contributed StoneMor Partners (STON); advertising agencies touted Charm Communications Inc. (CHRM).
Estimated annual dividends adjusted for market realities has somewhat quelled the pattern of speculative and unsubstantiated dividend payers showing up to claim the yellow tint in this sector. On that note, Alon Holdings - Blue is credited with a $.95 projected annual dividend by Yahoo Financial/Morningstar. Based on the most recent $.32 dividend proffered by the firm in December 2011, this article adjusted the estimate to $.60, which could be overly optimistic.
Technology ten sector stocks showing the biggest dividend yields in March represented seven industries. Top technology sector dog 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).
Ten utilities sector stocks showing the biggest dividend yields in March represented four industries: gas; electric; diversified; foreign. Four gas firms clustered at or near the top of the list were: Inergy, L.P. (NRGY); Niska Gas Storage (NKA); Suburban Propane (SPH); Amerigas Partners (APU). Two Electric Utilities were listed: Atlantic Power Corporation (AT); Pepco Holdings, Inc. (POM). Three Diversified Utilities made the list: TransAlta Corporation (TAC); (OTTR); Exelon Corporation (EXC). One Foreign Utility was listed: CPFL Energia (CPL).
Three technology firms paying the biggest dividends on the Dow as of March 13 were: (1) AT&T (T); (2) Verizon (VZ); (7) Intel (INTC). The rest of the Dow ten included three healthcare dogs: (3) Merck (MRK); (4) Pfizer (PFE); (6) Johnson & Johnson (JNJ). One industrial made the dog list: (5) General Electric (GE). Two consumer goods firms were included: (8) Procter & Gamble (PG); (9) Kraft Foods (KFT). A basic materials firm completed the ten Dow dogs: (10) Dupont (DD).
All Together Now
Each graph below shows monthly points of comparison between annual projected dividends resulting from $10,000 invested as $1,000 each in the top ten high yield stocks (blue points) versus the total prices of one share of each of the ten stocks (green points) by index. Grouped together the graphs display five months of comparative gyrations of eight sectors and one index.
Relative Risk of Dogs by Sector for March
A reader request to "add relative financial data on the companies selected" for a previous article comparing indices by annual yield projections has inspired a simple tool to gauge investment risk. The tool is best applied prior to the purchase of any 5 or 10 "Dogs of the Index" stocks at any point during the year. This information will continue to be reviewed monthly as one step toward Robert Schiller's admonishment to "make conservative preparations for possible bad outcomes."
Sector Dogs Vie for Dividend Dominance
The following graph shows annual dividends projected from $1,000 invested in each of ten stocks with the top yields in eight sectors compared to those of the Dow. The chart plots projected yields as of a specific purchase date near the middle of each month since October 2011. Projected yields increased in the sectors when average stock prices fell. When prices escalated yields dropped.
Relative yield strengths differentiated the sectors. The Dow shows the lowest yield with a low trajectory swing down of 6.045% for the period. Healthcare was down 9.56%; industrial goods fell 21.5% since October; basic materials dropped 7.19%; technology crashed 27.6%; financial yields were down 10.76%; services sector also vectored down 22.72% by projected dividends. In the other direction consumer goods yields were up 15.94% since October as were utilities up 5.82%.
Annual Dividends Forecast from $1,000 Invested in each of 10 Top Yielding Stocks in 8 Sectors and the Dow
Dogfight for Dividend Dominance Decided
Projected dividend yield amounts from eight sectors over the past six months showed fundamental variations in stock performance. These eight representative market indices displayed their relative strengths in top end dividend yield. Yields in January ranked the sectors in the following order:
The services sector blasted to top yield status in January at $1,950.51 annual yield projected from $1,000 invested in each of it's top ten stocks, the services sector vector crossed paths with technology in December and passed through the financial dogs in January. At a lower level, the industrial goods vector dropped below the upturns of utilities and consumer goods as it dropped from the $800 level.
As dividend reality struck several high flying sectors, the chart was totally reordered in February. Services plunged below financial dogs and basic materials in total dividends projected from $1,000 invested in each of the top ten stocks. Technology joined the race to the bottom as their dividends sank below basic materials still managing to stay just $50 below basic materials. Meanwhile utilities plunged in dividends to meet consumer goods trending up near the $700 level. Industrial goods dropped to the lowest level (but above the Dow) as their dividends for $10,000 invested plunged below healthcare by $26 projected annually.
March found financial sector dividends projected from $1,000 invested in each of the top ten stocks diverging furthest at 1,261.00% from aggregate single share prices for those ten stocks. The services sector pulled out of its dividend plunge but not until it had fallen lower at 931.31% in divergence than technology at 945.63%. Basic materials and utilities sectors framed the average divergence amount of 321.17% for the sectors. Meanwhile, healthcare at 117.68% and industrial goods at 113.93% showed up as the more conservative dividend investment options closest to the Dow index baseline which displayed near zero divergence at (1.93%).
These eight sectors and their component stocks have ongoing stories to tell. This graph and sector ranking list of sectors and indices will be updated again for publication each month.
Disclaimer: This article is for informational and educational purposes only and should 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.