This monthly report series began applying dog dividend methodology to each of eight major market sectors in December 2011. The sectors were, in alphabetical order: basic materials; consumer goods; financial; healthcare; industrial goods; services; technology; utilities.
A ninth sector, conglomerates, according to Yahoo Finance, contained just eight companies, five of which paid dividends. The editorial decision was not to apply dogs of the index metrics to a sector containing fewer than ten dividend paying equities.
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.
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 industrial goods sector companies was sorted by yield as of June 1 and July 2 using Ycharts.com to reveal the top thirty. Market performance of these selections was then reviewed using six 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 industrial goods 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 the top ten stocks in each.
Finally, analyst mean target prices and estimated forward looking dividends as reported by Yahoo Finance were used to report estimated price and dividends as of June 2013.
Industrial Goods Dividend Dogs
Ten industrial goods sector stocks paying the biggest dividends in May and June represented seven industries. Top industrial goods sector stock Veolia Environnement (VE) was one of three waste management companies in the top ten. The others were Waste Management (WM), and Ecology and Environment (EEI).
The top ten also included two aerospace & defense products & services firms: TAT Technologies (TATT), and Lockheed Martin (LMT). Highway Holdings (HIHO), was the lone metal fabrication outfit. The remaining four in the top ten also represented one industry each: CRH, plc (CRH), cement; KSW Inc. (KSW), general contractors; Hillenbrand (HI), diversified machinery; ABB Ltd. (ABB), industrial electrical equipment.
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the top ten industrial goods sector dividend 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: Industrial Goods Dogs Bullish Since January Go Neutral in June
The June industrial goods collection of 10 top dividend yielding stocks showed a 11.89% increase in aggregate single share prices since January. Dividends from $1k invested in each of the top ten declined 21.02% for the period. Since May, however, their price increased 10.73%, while dividends also inclined 2% to neutralize bullish price action.
Meanwhile, the Dow index has stabilized in an overbought pattern where aggregate single share price exceeded the annual estimated dividends from $1k invested in those ten by $75 or 18.75% as of June 14.
As of July 2, industrial goods sector top ten dogs showed $85, or 21.27%, more dividend from $1k invested in each of the top ten stocks by yield (with equally bigger risk) at a $246, or 51.89% lower aggregate single share price than those of the Dow.
2013 Projects Possible 28.56% Net Gain from 10 Industrial Goods Sector Dogs
The top ten dogs for the industrial goods (IndiGo) 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 analyst mean target prices as reported by Yahoo Finance created the 2013 data points green for price and blue for dividends.
Yahoo Finance projected a 19% lower dividend from $1k invested in each stock within this group, while the aggregate single share price for the ten was projected by analysts to increase by 21.19% in the coming year. Probable profit generating trades revealed by Yahoo for 2013 were Veolia Environnement netting $611.54, CRH plc netting $380.73, ABB Ltd. netting $583.55, and Ecology and Environment netting $1021.74 in the coming year to make the total net gain from dividends and swept price gains 28.56% from $10k invested according to analyst estimates.
A summary will conclude this series of articles each month showing the 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.
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 (except as noted) are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.