Top 10 Basic Materials September Dogs: Analysts Cast Net Gains At 47.66% In 2013

by: Fredrik Arnold

This report series began in December 2011 as dog dividend methodology was applied to each of eight major market sectors. Those sectors were: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities.

Modified Dogs of the Index Metrics Selected Ten Top Net Gain Basic Materials Stocks

For this article the entire list of basic materials sector companies was sorted by yield as of August 15 using to reveal the top forty. Market performance of these 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 the select forty basic materials equities were ranked using the two key dog performance metrics: (1) annual projected dividend; (2) stock price. Dividing the annual dividend by the price declared the percentage yield by which each dividend dog stock was primarily ranked. Then, (3) one year mean target price estimates by analysts supplemented 28 equities that showed higher prices for 2013.

A hypothetical $1000 investment in each equity was divided by the current share price to find a number of shares purchased. The number of shares was multiplied by projected annual per share dividend amounts to find a dividend return amount. Thereafter one year mean target prices multiplied by the number of shares supplemented the dividend amount minus a flat $20 broker fee to determine a net gain amount for the 28 stocks showing upside price gains into 2013.

Historically dividend dog investors utilized the two key metric ranking system of (1) annual projected dividend divided by (2) stock price 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.

Basic Materials Top Net Gain Dividend Dogs

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Top ten basic materials stocks projecting the biggest gains into September 2013 largely represented oil and/or gas industries: Whiting USA Trust I (NYSE:WHX), a driller; Exterran Partners (EXLP), equipment and services; VOC Energy Trust (NYSE:VOC), an independent; Buckeye Partners (NYSE:BPL), pipelines; MV Oil Trust (NYSE:MVO), a driller; Crestwood Midstream Partners (NYSE:CMLP), a driller; Mid-Con Energy Partners (NASDAQ:MCEP), an independent; Regency Energy Partners (NYSE:RGP), pipelines. Only two of the top ten basic materials firms do not mention oil or gas in their industry description: Natural Resource Partners (NYSE:NRP); Penn Virginia Resource Partners (NYSE:PVR). Both are in the industrial metals and minerals industry.

Dividend vs. Price Results

Below relative strengths of the top ten basic materials dividend dogs by net gain 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.

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Conclusion: Basic Material Net Gain Dogs Bullish Like Dow

The September basic materials collection of mainly oil and gas dividend payers filtered for maximum net gains continued a bullish trend that began in June as measured by dividend vs. price performance. Aggregate single share price for the top ten popped 17% while projected dividends from those top ten invested at $1k each decreased 17.7% for that period between June and September. The gap between aggregate single share prices rising to meet dropping projected dividends from $1k invested in each of those ten equities narrowed from 561% in June to 366% in September.

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 net gain dogs show $1166 or 306% more dividends (with equally bigger risk) at a $229 or 47.5% lower aggregate share price than those of the Dow as of September 28.

Conclusion Too:

2013 Expects 47.66% Net Gain from These 10 dogs

Top ten net gainer 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 mean target prices as reported by Yahoo Finance created the 2013 data points green for price and blue for dividends. Note: one year target estimated prices at or below current price were not included in the tally.

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For the coming year Yahoo Finance projected a 26% lower dividend from $1k invested in each stock within this top net basic materials group while aggregate single share price for the ten was projected by analysts to increase by 26%.

All ten made probable profit generating trades as revealed by Yahoo Finance for 2013. The Whiting USA Trust I net gain of $2,093.02 is based on estimates from one analyst. Natural Resource Partners' net gain of $448.89 is based on estimates from four analysts. Exterran Partners net gain of $385.84 is based on estimates from five analysts. The VOC Energy Trust net gain of $305.29 is based on estimates from three analysts. Buckeye Partners net gain of $288.73 is based on estimates from eight analysts. The MV Oil Trust net gain of $285.80 is based on estimates from one analyst. Crestwood Midstream Partners net gain of $247.65 is based on estimates from six analysts. Mid - Con Energy Partners net gain of $246.92 is based on estimates from four analysts. Regency Energy Partners net gain of $238.41 is based on estimates from nine analysts. Penn Virginia Resource Partners net gain of $225.85 is based on estimates from four analysts.

This portfolio of basic materials dividend paying stocks based on analyst one year mean price target estimates revealed a configuration of equities estimated to net a return of 47.68% versus a 3.07% return from dividends alone. This result is estimated to be 22% less risky than that detailed in the "Dogs of the Index" strategy described above and detailed in a separate article titled: "10 Basic Materials September Dogs Set to Gain 37.59%".

Disclaimer: This article is for informational and educational purposes only and should 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 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.