Basic Materials June Dogs: Dividend & Price Gains Projected To 2013

by: Fredrik Arnold

This monthly report series was initiated in December 2011 with dog dividend methodology applied to each of eight major market sectors. In alphabetical order, those sectors were: 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 paid dividends. Thus the reporter declined to apply dog metrics a sector containing fewer than ten dividend equities.

Dogs of the Index Metrics Selected Ten Top Basic Materials Stocks

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.

Historically dividend dog investors utilized this ranking system to select portfolios of five or ten stocks in any one index, sector, or survey to trade. They awaited the results from their investments in the lowest priced, highest yielding stocks 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 basic materials sector companies was sorted by yield as of July 2 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 basic materials sector top ten dividend dogs as of June 1 and July 2 opening prices vs. the Dogs of the Dow May 11 and June 14 stock lists. 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 those top ten stocks in each.

Basic Materials Dividend Dogs

Top ten basic materials stocks paying the biggest dividends in May largely represented oil and/or gas industries: Enerplus (NYSE:ERF); Whiting (NYSE:WHX); Pengrowth Energy (NYSE:PGH); QR Energy (NYSE:QRE); Sandridge Permian Trust (NYSE:PER); MV Oil Trust (NYSE:MVO); Exterran Partners (EXLP). Only three of the top ten basic materials firms do not mention oil or gas in their industry description: Great Northern (NYSE:GNI); Oxford (OXF); Rhino (NYSE:RNO).

In June, the top ten added four oil industrials as replacements, and in the process, cast Oxford out of the dog pound: Whiting USA Trust II (WHZ); Chesapeake Granite Wash Trust (NYSE:CHKR); Compressco Partners (GSJK); VOC Energy Trust (NYSE:VOC).

Dividend vs. Price Results Compared to Dow Dogs

Below is a graph of the relative strengths of the top ten basic materials dividend sector stocks by yield as of market close 7/2/2012 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.

Conclusion: Basic Material Dogs Still Chased by That Bear

The May and June basic materials collections of mainly oil and gas dividend payers have stayed the bearish course since February, when this sector came under attack. Aggregate dividends from $10k invested in each of the top ten stocks have increased 30.95%, since while aggregate prices fell 31.67% for the period.

Meanwhile, the Dow index has stabilized in a overbought pattern where aggregate single share prices exceed the annual estimated dividends from $1k invested in those ten by $75 or 18.75%.

Basic materials sector top ten dogs now show $987 or 246.72% more dividends (with equally bigger risk) at a $265 or 55.86% lower aggregate share price for the top ten dogs than those of the Dow as of July 2.

Conclusion Too:

2013 Projects 39.17% Net Gain from These 10 dogs

Top ten dogs for the Basic Materials sector were graphed below to show relative strengths by dividend and price as of June 1, 2012 and those projected to June 1, 2013.

Historic prices and actual dividends paid from $1000 invested in the ten highest yielding stocks and the aggregate single share prices of those ten stocks created the data points for 2012. Projections based on estimated increases in dividend amounts from $1000 invested in the ten highest yielding stocks and aggregate one year target share prices from Yahoo Finance created the 2013 data points green for price and blue for dividends.

Yahoo projected 18.17% lower dividends for this group, while price was projected to increase by 18.61% in the coming year. Probable profit generating trades revealed by Yahoo for 2013 were Enerplus Corporation netting $792.74, Pengrowth Energy Corp. netting $874.82, QR Energy netting $524.74, MV Oil Trust netting $376.20 and Exterran Partners netting $591.48 this year to make the total gain 39.17% on $10k invested.

A summary will conclude this series of articles each month showing comparative results of yield and price for all eight sectors reported: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities. Stay tuned also for periodic updates on how well or whether the projected gains for 2013 hold.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.