This article reports tantalizing takes from basic materials sector stocks tracked down as of closing prices April 26 using dividend dog methodology. This report series started in the fall of 2011 by applying dog dividend methodology to reveal possible buy opportunities in each of eight major market sectors listed by Yahoo Finance: basic materials (BasMats), consumer goods (ConGo), financials (Fins), healthcare (Heal), industrial goods (IndiGo), services (Svcs), technology (Tec), and utilities (Utes).
Briefly, Investor Glossary, an online investor primer, recently offered this 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.
Recently the author has supplemented Dow dividend dog theory picks from Yahoo sectors with one year mean target price estimates reported by yahoo from broker analysts.
Below, the Arnold BasMats Selections for April were disclosed.
Dog Metrics Sniffed Out Ten Top Basic Materials Stocks
Eight of the top ten basic materials stocks showing the biggest dividend yields per the Yahoo screen as of April 26 represented oil and/or gas industries: Whiting USA Trust I (NYSE:WHX), a driller whose leases expire in 2015 was tops; MV Oil Trust Unit (NYSE:MVO), another driller was second; BP Prudhoe Bay Royalty Trust (NYSE:BPT), listed as a refiner and marketer by Yahoo, was fourth; Penn West Corp (PWE) a driller, was fifth; Ferrellgas Partners LP (NYSE:FGP), a marketer was sixth; Pengrowth Energy Trust (NYSE:PGH), driller, was seventh; BreitBurn Energy Partners LP (BBEP) ,driller, was ninth; Seadrill Limited (NYSE:SDRL) driller, was tenth.
Just two of the top ten basic materials firms did not mention oil or gas in their industry description: Great Northern Iron Ore Properties (NYSE:GNI), a steel and iron concern whose lease also expires in 2015, took third place on the list; Natural Resource Partners (NYSE:NRP), an industrial metals and minerals firm, was eighth.
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the top ten basic materials dogs by yield as of market close 4/26/2013 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 (1): Basic Materials Top Ten Dog Dividend and Price Drop
April's basic material collection of dividend payers dividend from $1k invested in each and aggregate single share price of those ten stocks both dropped since March. Dividend from $10k invested in each of the top ten stocks dropped at a rate of 8.6% while total single share price dropped 11.2% in that period. The market signal was mixed.
The Dow remained bullish as price popped up 7% while dividend sank 3.8%. The Dow extended an overbought condition as aggregated single share price exceeded dividend from $1k invested in each stock by $140.52 or 38%.
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.
Wizards of Wall Street 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 (2): Analysts See 18.37% Net Gain from Top 20 Dogs Come 2014
Top twenty dogs for the basic materials sector were graphed below to show relative strengths by dividend and price as of April 26, 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 projected a 3.9% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 2% 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.
Actionable Conclusion Three (3): Analysts Forecast 10 Basic Materials Sector Dogs to Net 10.9% to 63.7% By April 2014
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
Penn West Corporation netting $637.05, based on dividends plus mean target price estimate from six analysts less broker fees;
Pengrowth Energy Corporation netted $376.30, based on dividends plus a mean target price estimate by six analysts less broker fees;
Enerplus Corporation (NYSE:ERF) netted $309.90 based on dividends plus mean target price estimate from seven analysts less broker fees;
Seadrill Limited netted $215.64 based on a mean target price estimate from thirteen analysts combined with projected annual dividend less broker fees;
Linn Energy, LLC (LINE) netted $197.06, based on dividend plus mean target price estimates from fourteen analysts less broker fees;
Legacy Reserves LP (NASDAQ:LGCY) netted $169.7.95 based on estimates from ten analysts plus dividends less broker fees;
Vanguard Natural Resources (NYSE:VNR) netted $169.70 based on dividends plus the mean of annual price estimates from ten analysts less broker fees;
BreitBurn Energy Partners LP netted $165.44 based on dividends plus mean target price estimate from thirteen analysts less broker fees;
Enbridge Energy Partners LP (NYSE:EEP) netted $122.95 based on estimates from fifteen analysts plus dividends less broker fees;
Pioneer Southwest Energy (PSE) netted $107.89 based on a mean target price estimate from twenty-three analysts combined with projected annual dividend less broker fees.
The average net gain in dividend and price was over 12.2% on $1k invested in each of these ten dogs.
The stocks listed above were suggested only as decent starting points for your sector dog dividend stock purchase research process. These were not recommendations.
These gains do not factor-in any tax problems resulting from distributions (not dividends and K-1s) from MLPs and any possible re-capture tax problems/rates that may suck projected gains out of some of these estimates at the regular tax bracket rate and not capital gain rates. Consult your tax advisor regarding the source of "dividends" from any investment.
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 ERF, 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.