Elite Dogs Chase 5.9% To 59.6% Gains In March Consumer Defensive Sector

by: Fredrik Arnold

Seeking Alpha reader requests prompted this Morningstar/YChart (M/Y) report series and began last month. It complemented my reports of possible dividend yield based buy opportunities from eight major market sectors as listed by Yahoo Finance which I've posted since the fall of 2011.

Investor Glossary, an online investor primer, recently offered this brief description of dividend dog methodology:

...[I]nvented to find the 10 stocks of the 30-stock Dow Jones Industrial Average with the highest yield (dividend / price) and invest equally in each, [t]he Dow dividend theory also requires that you repeat this process once a year.

So, in response to both Seeking Alpha reader requests and Ycharts.com migration to an eleven sector list, this report series offered three actionable conclusions in unique articles devoted top high yield members of the M/Y sectors: basic materials; communication services; consumer cyclical; consumer defensive; energy; financial services; healthcare; industrials; real estate; technology; utilities. These sectors were all subjected to screening based on a once per year trading system triggered by yield supplemented with one year mean target price estimates from broker analysts.

Below, the Arnold M/Y Consumer Defensive Sector Selections for March were disclosed.

Dog Metrics Revealed Top M/Y Consumer Defensive Stocks

The elite ten consumer defensive stocks showing the biggest dividend yields per the YCharts screen as of March 22 represented five industries. Tops was one of four tobacco firms listed, Vector Group (NYSE:VGR). The other tobacco firms placed fifth through seventh, Lorillard (NYSE:LO), Reynolds American (NYSE:RAI), and Altria Group (NYSE:MO). A chain of grocery stores took second (NYSE:RNDY). CCA Industries (NYSEMKT:CAW), the only personal products firm listed was third. Fourth place went to Ambassadors Group (NASDAQ:EPAX), the elite dog of three education and training companies. The other two education firms, TAL Education Group (XRS), and Lincoln Educational Services Corporation (NASDAQ:LINC), placed eighth and tenth. Finally, Cresud Sociedad An (NASDAQ:CRESY), a farm products company was ninth.

Dividend vs. Price Results Compared to Dow Dogs

Below is a graph of the relative strengths of the top ten M/Y consumer defensive dogs by yield as of market close 3/22/2013 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.

Actionable Conclusion: M/Y Consumer Defensive Dogs Cowed by Bear While Dow Was Bullish

The M/Y consumer defensive collection of dividend payers has sent a mixed to bullish market signal since October, 2012 as aggregate single share price of the top ten stayed level around $170 while dividends from $10k invested those ten dropped at each marking period. In the past month however the consumer defensive collection was bearish as dividend rose .4% while price sank .6%.

The Dow, meanwhile went totally bullish as price popped up 9.2% while dividend sank 3.1% last month. The Dow shows an overbought condition by 24% as aggregated single share price exceeded dividend from $1k in vested in each stock by $92.

Since sector dogs are not the blue chip high quality equivalents of the Dow list, an additional gauge of upside potential was added to the simple high yield metric used to sniff out bargains.

Wall Street Whiz Kids Weighed In

One year mean target price set by analysts multiplied by the number of shares in a $1k investment were used to compare ten stocks showing the highest upside price potential into 2014 out of 20 selected by yield. The number of analysts providing price estimates was noted after the name for each stock. Three to nine analysts was considered optimal for a valid mean target price estimate.

Actionable Conclusion Too: Analysts See 10.9% Net Gain from Top 20 M/Y Consumer Defensive Dogs Come 2014

Top twenty dogs for the M/Y consumer defensive sector were graphed below to show relative strengths by dividend and price as of March 22, 2013 and those projected by analyst mean price target estimates to the same date in 2014.

A hypothetical $1000 investment in each equity was divided by the current share price to find the number of shares purchased. The shares number was then multiplied by projected annual per share dividend amounts to find the dividend return. Thereafter the analyst mean target price was used to gauge the stock upsides to 2014.

Historic prices and actual dividends paid from $1000 invested in the ten highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 2 created the data points for 2013. Projections based on estimated increases in dividend amounts from $1000 invested in the twenty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 2 created the 2014 data points green for price and blue for dividends.

Yahoo analyst reports projected over a 10% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by nearly 8.4% in the coming year. The number of analysts contributing to the mean target price estimate for each stock was noted in the last column on the charts. Three to nine analysts was considered optimal for a valid projection estimate. Estimates provided by one analyst were not applied (n/a).

Actionable Conclusion Three: Analysts Predict 2014 M/Y Consumer Defensive DiviDogs to Net 5% to 56.2%

Seven probable profit generating trades revealed by Yahoo Finance for 2014 were:

Cresud Sociedad An (CRESY) netted $596.04, based on dividends plus mean target price estimate from three analysts;

TAL Education Group (XRS) netted $420.00 based on dividends plus mean target price estimate from eight analysts;

Lorillard (LO) netted $157.35 based on a mean target price estimate from nine analysts combined with projected annual dividend;

Altria Group (MO) netted $112.41, based on dividend plus mean target price estimates from eleven analysts;

Companhia de Bebidas (ABV) netted $90.98 based on estimates from seven analysts plus dividends;

Reynolds American (RAI) netted $88.16 based on dividends plus the mean of annual price estimates from nine analysts;

B&G Foods (NYSE:BGS) netted $59.22, based on dividends plus mean target price estimate from five analysts.

The average net gain in dividend and price was 21.77% on $1k invested in each of these seven dogs.

The stocks listed above were suggested only as decent starting points for your M/Y sector dividend stock purchase research process. These were not recommendations.

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 DD, GE, INTC, JNJ, MCD, MSFT, PFE, T, VZ. 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.

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