Utilities Sector Dogs Adjust In April

by: Fredrik Arnold

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.

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 Utilities 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 utility sector companies was sorted by yield as of May 16 using Ycharts.com 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 services dividend dogs as of May 1 opening prices vs. the Dogs of the Dow May 11 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.

Utility Dividend Dogs

The top ten utilities sector stocks showing the biggest dividend yields in April represented four industries: gas; electric; diversified; foreign. Four gas firms clustered at or near the top of the list were: Niska Gas Storage (NYSE:NKA); Suburban Propane (NYSE:SPH); Amerigas Partners (NYSE:APU); Inergy, L.P. (NRGY). Three electric Utilities were listed: Atlantic Power Corporation (NYSE:AT); Pepco Holdings, Inc. (NYSE:POM); PPL Corporation (NYSE:PPL). Two diversified utilities made the list: TransAlta Corporation (NYSE:TAC); Otter Tail Corporation (NASDAQ:OTTR). One foreign utility was listed: CPFL Energia (NYSE:CPL).

Up and Down Moves Show 10% Changeover in Utilities Dividend Dog Stocks

In April Niska returned to the yellow tinted top utilities dog slot.

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

Bullish upward price moves among the top ten technology dogs since March 30 included seven of eleven eligible equities listed in March and April: Niska Gas Storage Partners snagged the top slot by yield even after posting a 33.26% price pop; Atlantic Power Corporation saw a 4.7% price boost; Amerigas Partners flared 1.05%; Inergy, L.P. flamed 20% but projected dividends were cut 38.02% to drop it from the top slot; Pepco Holdings, Inc. popped 1.93%; Exelon Corporation (NYSE:EXC) from March charged up 1.62% while it's dividend dropped 27.6% to drop it out of the top thirty; Otter Tail Corporation rose .549% in price.

Bearish moves for the same period were experienced by the remaining four firms in the utility top ten dog pound: Suburban Propane Partners slid 3.23% in price; TransAlta Corporation stock price sagged 8.94%; PPL Corporation powered down .941%; CPFL Energia discharged 8.7%.

All in all the utilities dog price gainers outnumbered losers seven to four since March.

Dividend vs. Price Results Compared to Dow Dogs

Below is a graph of the relative strengths of the top ten utilities sector dividend stocks by yield as of market close 5/1/2012 compared to those of the Dow. 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 Adjust in April

The April utilities group of ten top yielding equities showed a 3.49% decrease in aggregate single share price since March 30. Projected annual dividends from $1k invested in each of the top ten also decreased 12.47% for that period as several top dogs reduced annual dividend expectations.

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. Since then however the Dow aggregate single share price for the top ten has rallied up 17.56% into May.

As of April 30 utilities sector top ten dogs showed $313 or 77.67% more dividends (with equally bigger risk) at a $231 or 48.81% lower aggregate single share price than the Dow top ten.

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. Stay tuned!

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.

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