2 Industrial Sector Dogs Forge +20% October Upsides; 2% & 6% Downsides
This end of month report tallied results from here as verified using Yahoo Finance data for industrial goods sector as of market closing prices November 1 along with analyst mean target price results one year hence. The comparison found 2 residential construction firms hammering out 22.44% and 29.55% price upsides.
MDC Holdings Inc. (MDC) the Denver based builder with 22.44% showed the lower upside of the two. At the top, DR Horton, Inc. (DHI) the Fort Worth, TX based firm forged a 29.55% upside to lead the two. Eight more industrial goods dogs back in the pack showed 7.67% to 17.05% price upsides.
On the downside, two stocks exhibited pending price slumps of 2.56% and 6.31% based on 1 yr. analyst mean target pricing. Raytheon Co. (RTN), the Waltham, MA based aerospace/defense firm presented the weakest bearish sentiment while American Science & Engineering Inc. (ASEI), a Billerica, MA based inspection & detection product firm measured 6.31% to the downside to most tempt hungry bears.
The chart above used one year mean target price set by brokerage analysts matched against November 1 closing price to compare ten sector 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 were considered optimal for a valid mean target price estimate.
This series of articles started applying dog dividend methodology in the fall of 2011 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).
This report presumed yield (dividend / price) dividend dog methodology applied to any sector and compared that sector side by side with the Dow industrial index leaders. Below, the Arnold IndiGo selections for October were disclosed step by step.
Dog Metrics Sorted Ten Top Industrial Goods Stocks
Ten industrial goods sector stocks showing the biggest dividend yields according to Yahoo as of November 1 represented eight industries. Top industrial goods sector stock, Susser Petroleum Partners LP (SUSP), was the lone industrial equipment wholesale firm listed. Similarly the single Aerospace & defense-major firm, Lockheed Martin Corporation (LMT) placed second. Diversified machinery was represented by Ampco-Pittsburgh Corp. (AP) in third place. Two residential construction firms placed fourth and seventh: MDC Holdings Inc., and DR Horton, Inc. Two waste management firms made the top ten: Waste Management (WM) in fifth place, and Republic Services, Inc. (RSG) in ninth. Two wood production firms placed sixth and tenth: Pope Resources L.P. (POPE), and Weyerhaeuser (WY). The remaining company in the top ten was inspection & detection product firm, American Science & Engineering Inc. in eighth place.
Dividend vs. Price Results Compared to Dow Dogs
The graph below of relative strengths of the top ten industrial goods sector dogs by yield as of market close 11/1/2013 compared to those of the Dow industrials index was prepared to show projected annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks along with the total single share price of those ten stocks with the data points shown in green for price and blue for dividends.
Actionable Conclusion (1): Industrial Goods & Dow Dogs Both Dithered
The industrial goods collection of dividend payers got confused after September as total single share price rocketed up 34% while aggregate dividend from $10k invested as $1k in each of the top ten healthcare dogs just nudged up at a rate of 0.7% for the period. The industrial goods pack is now fully in overbought territory where aggregate single share price of the ten exceeds the dividend derived from $10k invested as $1K in each by $113 or 31.5%. The pop in market price was likely exaggerated by the author's use of a more inclusive stock screen for price and dividend data.
For the Dow dogs, meanwhile, projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs dropped just 0.6% since September, while aggregate single share price swooned 11%, ending a brief bullish track. The Dow dogs overbought condition in which aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten shrank. The overhang was $198 or 53% in June, then shrunk to $153 or 41% in July, compressed to $125 or 33% in August, then expanded to $161 or 43% for September, then shrank down to $111 or 30% for October.
To quantify the top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential and so were added to the simple high yield "dog" metric used to dig out bargains.
Actionable Conclusion (2): Wall Street Wizards Wish a 8.98% Net Gain from Top 20 Industrial Goods Dogs Come 2014
Top twenty dogs from the industrial goods sector were graphed below to show relative strengths by dividend and price as of November 1, 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 $20,000 invested as $1k in each of the 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 dividend graphed from the plus row in the chart below exhibiting the 8.98% net gain.
Factoring in a 0.36% loss from the two negative net stocks introduced above, a net gain of 8.61% results.
Yahoo projected a 6.5% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by over 6.2% in the coming year. Note that the chart showed an overbought condition as aggregate single share price for ten industrial goods dogs exceeded projected dividends from $1k invested in each of those ten.
The number of analysts contributing to the mean target price estimate for each stock was noted in the next to 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).
A beta (risk) ranking for each stock was provided in the far right column on the above chart. A beta of 1 meant the stock's price would move with the market. Less than 1 showed lower than market movement. Higher than 1 showed greater than market movement. A negative beta number indicated the degree of a stock price movement opposite of market direction.
Actionable Conclusion (3): Analysts Forecast 2014 Industrial Goods DiviDog Net Gains of 7.4% to 30.8%
Four of the ten top dividend yielding industrial goods dogs were verified as being among the ten gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy for this sector as graded by Wall St. wizards was 40% accurate.
Ten probable profit generating trades were revealed by Thompson/First Call in Yahoo Finance for 2014:
DR Horton, Inc. netted $307.93 based on dividends plus a mean target price estimate from twenty analysts less broker fees. The Beta number showed this estimate subject to volatility 69% more than the market as a whole.
MDC Holdings Inc. netted $239.12 based on dividends plus the mean of annual price estimates from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 111% more than the market as a whole.
James Hardie Industries (JHX) netted $176.10 based on dividends plus mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 43% more than the market as a whole.
Stanley Black & Decker, Inc. (SWK) netted $159.89 based on a mean target price estimate from eleven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 74% more than the market as a whole.
Briggs & Stratton (BGG) netted $127.07 based on estimates from two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 29% more than the market as a whole.
Republic Services, Inc. netted $125.31 based on estimates from seven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 44% less than the market as a whole.
ABB Limited (ABB) netted $123.59, based on dividends plus mean target estimates from four analysts less broker fees. The Beta number showed this estimate subject to volatility 68% greater than the market as a whole.
Weyerhaeuser netted $95.36 based on estimates from thirteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 47% more than the market as a whole.
Caterpillar, Inc. (CAT) netted $84.40, based on dividends plus estimates from twenty-two analysts less broker fees. The Beta number showed this estimate subject to volatility 74% more than the market as a whole.
NN, Inc. (NNBR) netted $73.71 based on estimates from two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 256% more than the market as a whole.
The average net gain in dividend and price was 15.13% on $1k invested in each of these ten dogs. This gain estimate was subject to average volatility 73% more than the market as a whole.
Actionable Conclusion (4): (Bear Alert) Analysts Forecast 2 Industrial Goods DiviDogs to Post Net Losses of 1.9% to 5.3% By October 2014
Two probable losing trades revealed by Yahoo Finance for 2014 were:
Raytheon Co. lost $19.28, based on dividend and mean target price estimates from three analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 30% less than the market as a whole.
American Science & Engineering Inc. lost $52.77 based on dividends and the mean of annual price estimates from eight analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 56% greater than the market as a whole.
The average net loss in dividend and price was over 3.6% on $2k invested as $1k in each of these two dogs. This loss estimate was subject to average volatility 13% more than the market as a whole.
The net gain and loss estimates above did not factor-in any foreign or domestic tax problems resulting from distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.
Stocks listed above were suggested only as possible starting points for your index dog 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 GE, INTC, 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.
This article was written by
Fredrik Arnold is a retired quality service analyst sharing investment ideas with a primary focus on dividend yields by utilizing free cash flow and one-year total returns as trading indicators.
He is the leader of the investing group The Dividend Dog Catcher, where he shares a minimum of one new dividend stock idea per week with focus on yield or extraordinary financial circumstances. All ideas are archived and available after weekly announcement. Learn more.Recommended For You
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