Yield (dividend/price) results from here verified by Yahoo Finance for utilities sector leading stocks as of market closing prices May 8 were supplemented with analyst 1-yr target projections to reveal four actionable conclusions discussed below.
Wall Street Wizard Weightings
One-year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment revealed ten stocks showing the highest upside price potential into 2015 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 have usually provided the most accurate mean target price estimates.
Actionable Conclusion (1) Ten Utilities Dividend Dogs Traced 4.6% to 10.6% Upsides
Thirty For the Money
Since the fall of 2011, this report series has applied dog dividend methodology to uncover 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). In the past year, the series expanded to report (1) dividend yield; (2) price upside; (3) net gain results based on analyst 1-yr. target projections.
Dog dividend methodology is based on Michael B. O'Higgins book "Beating The Dow" (HarperCollins, 1991), which 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. Now named Dogs of the Dow, O'Higgins' system also works to find bargains in any collection of dividend paying stocks. Utilizing analyst price upside estimates has expanded the stock lists to include popular growth equities, if desired.
Dog Metrics Gauged Utilities Stocks by Yield
Utilities sector stocks that showed the biggest dividend yields since April, per Yahoo Finance data, represented four industries: diversified, electric, gas, and foreign. Tops was one of three diversified utilities, Just Energy Group, Inc. [Canada] (NYSE:JE). The other diversified firms placed third and fifth: Southcross Energy Partners, L.P. (NYSE:SXE), and TransAlta Corp. (NYSE:TAC). The most downtrodden electric firm, Atlantic Power Corporation (NYSE:AT), placed second. The lone gas firm placed fourth, Suburban Propane Partners (NYSE:SPH).
Four electric firms claimed slots six, seven, nine & ten: TECO Energy, Inc. (NYSE:TE); Hawaiian Electric Industries (NYSE:HE); Southern Company (NYSE:SO); Brookfield Infrastructure Partners L.P. (NYSE:BIP).
A foreign utility, CPFL Energia S.A (NYSE:CPL) in eighth place completed the top ten dog list.
Dividend vs. Price Results Compared to Dow Dogs
Graphs below as of market close 5/16/2014 compared relative strengths of the top ten utilities sector dogs by yield with those of the Dow Industrials index. 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 made the data points shown in green for price and blue for dividends.
Actionable Conclusion (2): Utilities Dogs Were Mixed Up While Dow Dogs Chased Bulls
Utilities dividend payers as of May 16 increased in dividend from $10k invested as $1k in each of the top ten stocks while aggregate single share price of those ten also jumped up. Dividends rose at a rate of 1% since April, while total single share price hopped up 11% as Southern Electric pushed into the top ten.
Revelry returned to the Dow dogs as projected annual dividends from $10k invested as $1K in each of the top ten declined 9% since April. At the same time, aggregate single share price jumped up 16% to confirm the bullish turn. 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 increased. The overhang was $145 or 38% for January, retreated to $125 or 33% in February, grew to $160 or 43% in March, shrunk again to $75 or 18.5% for April, then expanded to $187 or 51% in May.
To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metric, analyst mean price target estimates is another tool used to dig out bargains.
Actionable Conclusion (3): Wall Street Wizards Expect 6.5% Net Gain from Top 20 Utilities Dogs Come May 2015
Top twenty dogs for the utilities sector were graphed below to show relative strengths by dividend and price as of May 16, 2014, and those projected by analyst mean price target estimates to the same date in 2015.
A hypothetical $1k 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 2015.
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 2014. Projections based on estimated dividend amounts from $1k invested in the twenty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 2 created the 2015 data points: green for price and blue for dividend.
Yahoo projected a 3% lower dividend from $10K invested in this group, while aggregate single share price was projected to increase by over 3.6% in the coming year. 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 market direction.
Actionable Conclusion (4): Analysts Forecast Ten May 2015 Utilities DiviDogs to Net 7% to 15%
Just four of the ten top dividend yielding utilities 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 by 2015:
Southcross Energy netted $151.01, based on dividend plus mean target price estimates from five analysts less broker fees. The beta number showed this estimate subject to volatility 40% greater than the market as a whole.
Summit Midstream Partners (NYSE:SMLP) netted $131.12 based on estimates from seven analysts plus dividends less broker fees. The beta number showed this estimate subject to volatility 7% greater than the market as a whole.
Pattern Energy Group Inc. (NASDAQ:PEGI) netted $124.88 based on estimates from seven analysts plus dividends less broker fees. A beta number was not available for PEGI.
UIL Holdings (UIL) netted $113.60 based on dividends plus a mean target price estimate from ten analysts less broker fees. The beta number showed this estimate subject to volatility 71% less than the market as a whole.
TransAlta Corp netted $113.23 based on dividends plus a mean target price estimate from five analysts less broker fees. The beta number showed this estimate subject to volatility 89% less than the market as a whole.
FirstEnergy (NYSE:FE) netted $102.52 based on estimates from sixteen analysts plus dividends less broker fees. The beta number showed this estimate subject to volatility 3% opposite the market as a whole.
Duke Energy (NYSE:DUK) netted $90.59 based on estimates from seventeen analysts plus dividends less broker fees. The beta number showed this estimate subject to volatility 94% less than the market as a whole.
Brookfield Infrastructure Partners L.P. netted $89.24 based on estimates from seven analysts plus dividends less broker fees. The beta number showed this estimate subject to volatility 52% less than the market as a whole.
Hawaiian Electric netted $80.41, based on dividends plus mean target price estimate from six analysts less broker fees. The beta number showed this estimate subject to volatility 80% less than the market as a whole.
Consolidated Edison (NYSE:ED) netted $72.07 based on estimates from fourteen analysts plus dividends less broker fees. The beta number showed this estimate subject to volatility 3% opposite the market as a whole.
The average net gain in dividend and price was 10.7% on $10k invested as $1k in each of these ten utilities dogs. This gain estimate was subject to average volatility 61% less than the market as a whole.
The net gain 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 sector dog dividend stock purchase/sale 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 AT, CSCO, CVX, GE, INTC, MCD, 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.