Utilities Sector June Dogs Could Gain 16.55% By 2013

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 |  Includes: AMID, APU, AT, CMLP, CPL, NGG, NKA, PNG, POM, SPH, TAC
by: Fredrik Arnold

Since December this series of articles 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.

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 utility sector companies was sorted by yield as of June 1 and July 2 using Ycharts.com to reveal the top thirty stocks for each month. Market performance of those thirty monthly selections was then reviewed using six 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 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.

Utility Dividend Dogs

The top ten utilities sector stocks showing the biggest dividend yields in May represented four industries: gas; electric; diversified; foreign. Six gas firms scattered from top yo bottom of the list were: Niska Gas Storage (NKA); Suburban Propane (SPH); Amerigas Partners (APU); Inergy, L.P. (NRGY); National Grid (NGG). Two electric Utilities were listed: Atlantic Power Corporation (AT); Pepco Holdings, Inc. (POM). One diversified utility made the list: TransAlta Corporation (TAC). One foreign utility was listed: CPFL Energia (CPL).

In June American Midstream Partners (AMID) replaced Pepco Holdings and PAA Natural Gas Storage (PNG) replaced Gas Natural. The total Gas utilities represented in June thus rose to seven of the top ten as one electric utility was replaced.

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 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.

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Conclusion: Utilities Sector Dogs Barely Bullish for 2012

The utilities group of ten top equities by yield showed a 4.39% increase in aggregate single share price since January. Projected annual dividends from $1k invested in each of the top ten decreased 5.38% for that period and showed barely bullish action for the year thus far.

Meanwhile, the Dow index 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. For the year Dow aggregate single share price increased 21.56% while projected annual dividends from $1k invested in each of the top ten increased 1.51% for that period.

As of July 2 utilities sector top ten dogs showed $398 or 99.46% greater dividend (with equally bigger risk) at a $212 or 44.51% lower aggregate single share price than the Dow top ten.

Conclusion Too:

16.55% Net Gain Projected From 10 Utilities Sector Dogs in June 2013

Top ten dogs for the utilities (Utes) 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.

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For the coming year Yahoo Finance projected a 5.23% lower dividend from $1k invested in each stock within this group while aggregate single share price for the ten was projected by analysts to increase by 9.11%. Probable profit generating trades revealed by Yahoo for 2013 were Inergy netting $199.12, TransAlta Corporation netting $306.46, CPFL Energia netting $326.14, and Gas Natural netting $271.09 in the coming year. The total net gain from dividends and swept price gains was 16.55% from $10k invested according to analyst estimates.

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.

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.

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