This Morningstar/YChart (M/Y) report series began in February prompted by Seeking Alpha reader requests. 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.
So, responding to both the Seeking Alpha reader request and Ycharts.com migration to an eleven sector list, this report provided three actionable conclusions about the highest yield (dividend / price) stocks from the Morningstar/YCharts (M/Y) sectors: basic materials; communication services; consumer cyclical; consumer defensive; energy; financial services; healthcare; industrials; real estate; technology; utilities.
These dog theory picks were supplemented with one year mean target price estimates from broker analysts. Those results composed the Arnold m/y utilities sector selections for April shown below.
Dog Metrics Turned Up Brightest Utilities Stocks
The brightest ten utilities sector stocks showing the biggest dividend yields May 3 by M/Y represented three industries: gas; diversified; independent power producers. Top dog, Just Energy Group (NYSE:JE) was one of two diversified utilities firms. The other diversified utility, PVR Partners (NYSE:PVR), was fifth. Second place went to Transportadora de Gas del Sur (NYSE:TGS), one of six gas utilities. The other gas firms were in third, fourth, eighth, ninth, and tenth places: American Midstream Partners (NYSE:AMID); Niska Gas Storage Partners (NYSE:NKA); Southcross Energy Partners (NYSE:SXE); Amerigas Partners (NYSE:APU); Suburban Propane Partners (NYSE:SPH). Two independent power producers in sixth and seventh places, Atlantic Power Corporation (NYSE:AT), and TransAlta Corporation (NYSE:TAC), completed the top ten brightest yielding M/Y utilities dog list for April.
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the top ten M/Y utilities dogs by yield as of market close 5/3/2013 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 dividend.
Actionable Conclusion (1): M/Y Utilities Dogs & Dow Went Bullish
The April m/y utilities collection of dividend payers initiated a bullish price course as aggregate single share price popped up 5.8% since March. April Dividend from $1k invested in each of the top ten m/y utilities stocks, dropped down at a rate of 8.2% last month.
The Dow dogs, meanwhile remained totally bullish last month as price popped up 7% and 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 identify bargains.
Wall Street Wizard Wisdom Weighed
The one year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment identified seven 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 Anticipate 9.7% Net Gain from Top 20 M/Y Utilities Dogs In 2014
Top twenty dogs for the M/Y utilities sector were graphed below to show relative strengths by dividend and price as of May 3, 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 price upsides and net gains including dividends less broker fees as of 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 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 7.9% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 4.3% 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 (3): Analysts Forecast 7 M/Y Utilities DiviDogs to Net 6.4% to 36.6% By April 2014
Seven probable profit generating trades revealed by Yahoo Finance for 2014 were:
- Atlantic Power Corporation (AT) netted $365.59 based on dividends plus mean target price estimate from three analysts less broker fees;
- American Midstream Partners (AMID) netted $186.55 based on based on dividends plus mean target price estimate from three analysts less broker fees;
- PVR Partners (PVR) netted $229.47, based on dividend plus mean target price estimates from six analysts less broker fees;
- Unitil Corporation (NYSE:UTL) netted $100.00, based on dividends plus mean target price estimate from four analysts less broker fees;
- TransAlta Corporation (TAC) netted $97.33 based on estimates from six analysts plus dividends less broker fees;
- Southcross Energy Partners (SXE) netted $87.36 based on a mean target price estimate from three analysts combined with projected annual dividend less broker fees;
- Summit Midstream Partners (NYSE:SMLP) netted $63.76 based on target estimates from twelve analysts plus dividends less broker fees.
The average net gain in dividend and price was over 15% on $1k invested in each of these seven dogs.
The above net gain estimates did 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 could 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 and consequences of "dividends" from any investment.
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.
Disclosure: I am long AT, 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.
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.