In December 2011 this report series began. It showed dog dividend methodology applied to reveal possible buy opportunities in each of eight major market sectors: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities.
Dogs of the Index Metrics Selected Ten Top Basic Materials Stocks
Two key metrics determined the yields that ranked these sector dog stocks: (1) projected annual dividend; (2) stock price. 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 August 15 using Ycharts.com to reveal the top forty. Market performance of those forty selections was then reviewed using nine 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 September 28 closing prices vs. the Dogs of the Dow. 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.
Basic Materials Dividend Dogs
Top ten basic materials stocks paying the biggest dividends in September mostly represented oil and/or gas industries: Whiting USA Trust I (NYSE:WHX), a driller; Whiting USA Trust II (NYSE:WHZ), an independent; VOC Energy Trust (NYSE:VOC), an independent; Chesapeake Granite Wash Trust (NYSE:CHKR), an independent; Sandridge Permian Trust (NYSE:PER), an independent; SandRidge Mississippian Trust I (NYSE:SDT), an independent. Just four of the top ten basic materials firms did not mention oil or gas in their industry description: Oxford Resource Partners (NYSE:OXF), a metal and minerals firm; Great Northern Iron Ore Properties (NYSE:GNI), a steel and iron concern; Rentech Nitrogen Partners (NYSE:RNF), in agricultural chemicals; Rhino Resource Partners (NYSE:RNO) a nonmetallic mineral miner.
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 9/28/2012 compared to those of the Dow. Historic projected annual dividend history from $1000 invested in each of the ten highest yielding stocks and the total single share prices of those ten stocks created the data points shown in green for price and blue for dividends.
Conclusion: Basic Material Dogs May Be Bullish ... Or not
September's basic materials collection of dividend payers may have departed from the bearish course in price after May. Since then prices have popped 22.3%.
However, aggregate dividends from $10k invested in each of the top ten stocks have also increased at a rate of 17.4% for the period which is bearish.
Meanwhile, the Dow index moved back to overbought divergence as aggregate total single share prices popped 20% while dividends from $1k invested in the top ten fell 5.3% to move beyond the 18.76% overbought divergence shown in June to 26.7% in September.
Basic materials sector top ten dogs showed $1166 or 306% more dividends (with equally bigger risk) at a $229 or 47.5% lower aggregate share price for the top ten dogs than those of the Dow as of September 28.
2013 Projects 37.59% 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 September 28, 2012 and those projected by analyst mean price target estimates to the same date in 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 target share prices from Yahoo Finance created the 2013 data points green for price and blue for dividends.
Yahoo projected 12.5% lower dividends for this group while price was projected to increase by 8.3% in the coming year. Five probable profit generating trades revealed by Yahoo for 2013 were: Whiting USA Trust I netting $2.093.02, based on estimates from one analyst; VOC Energy Trust netting $305.29, based on estimates from three analysts; Chesapeake Granite Wash Trust netting $188.11, based on estimates from one analyst; Rhino Resource Partners netting $167.78, based on estimates from one analyst; SandRidge Permian Trust netting $224.98 this year, based on estimates from 3 analysts. The net gain in dividend and price was 37.59% on $10k invested.
A 22% less risky approach than that detailed in the "Dogs of the Index" strategy described above is written up in a separate article titled: "Top 10 Basic Materials September Dogs: Analysts Cast Net Gains at 47.66% in 2013".
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, INTC, JNJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.