Top 10 Basic Materials Dividend Dogs Score 15.6% To 48% September Upsides

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Includes: ARP, BPT, CCLP, HGT-OLD, LNCOQ, LNGG, LRE, MCEP, MEMP, MMLP, MVO, NTI, OCIP, PER, PGHEF, SDRL, UAN
by: Fredrik Arnold

Summary

Ten Basic Materials sector dividend dogs were found to promise 1-year upsides averaging 22.85% into September 2015.

Top ten Basic Materials dogs retreated from bears as Dow dogs ran with bulls after August.

Analysts projected average 30.26% 1-year net gains for PGH, SDRL, MMLP, ARP, NTI, GSJK, MCEP, UAN, and LNCO.

Consider these stocks as possible starting points for your Basic Materials dividend dog September stock purchase research.

Yield (dividend / price) results from here verified by Yahoo Finance were calculated for small, mid, and large cap Basic Materials stocks as of market closing prices on September 16. Small cap firms were valued at $200M(illion) to $2B(illion); mid cap firms were worth $2B to $10B; large caps were valued above $10B. Those yield results, when compared with analyst 1-year target projections, led to four actionable conclusions discussed below.

Wall Street Wizard Weights

One-year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment were used to compare ten stocks showing the highest upside price potential into 2015 out of 30 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 (1) Ten Basic Materials Dividend Dogs Scored Upsides from 15.6% to 48% per Analyst September 1-year Targets

Fifty For the Money

Since late 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 two years, the series expanded to report (1) dividend yield; (2) price upside; (3) net gain results based on analyst 1-year 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 Sorted Basic Materials Sector Stocks by Yield

All but one of the top ten basic materials stocks showing the biggest dividend yields as of September 16 represented oil and/or gas (o&g) industries. Top dog SandRidge Permian Trust (NYSE:PER) was one of five independent o&g firms to place in the top ten by yield. The other four independents placed third, fifth, seventh and ninth: MV Oil Trust (NYSE:MVO); Atlas Resource Partners, L.P. (NYSE:ARP); LRR Energy L.P. (NYSE:LRE); Memorial Production Partners LP (NASDAQ:MEMP).

Two drillers, Seadrill Limited (NYSE:SDRL) and Hugoton Royalty Trust (NYSE:HGT-OLD), placed second and sixth; one o&g refiner and marketer, BP Prudhoe Bay Royalty Trust (NYSE:BPT), placed fourth.

The non-oily and non-gassy firm to make the top ten by yield represented the agricultural chemical industry. CVR Partners L.P. (NYSE:UAN) placed eighth to complete the top ten for September.

Leading Basic Materials Dividend vs. Price Results Compared to Top Dow Index Dogs

Relative strengths of the top ten basic materials dogs graphed below by yield were plotted as of market close 9/16/2014 and compared to those of the Dow. Projected annual dividend history from $10,000 invested as $1k 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 (2): Basic Materials Top Ten Retreated Bearishly As Dow Dogs Meekly Charged into September

Dividend from $10k invested as $1k in each basic materials top ten dog increased, while the aggregate single share price of those ten fell since August. Dividend popped up at a rate of 4.3%, while total single share price dropped 4.7% in that period. Septembers bearish market signal was highly influenced by low-priced, higher-yielding issues replacing higher-priced, lower-yielding stocks in the top ten basic materials dog list.

Meanwhile, Dow dogs frolicked and romped by showing slightly lower annual dividend from $10k invested as $1K in each of the top ten descending 0.9% after August, while aggregate single share price squeaked up 0.96%.

As a result, the Dow dogs' overbought condition (in which aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k each in those ten) expanded. The overhang was $145 or 38% for January; retreated to $125 or 33% in February; swelled to $149 or 40% in March; expanded to $173 or 47% in April; shrank to $170 or 46% come May; swelled to $215 or 59% for July; fell back to $186 or 50% in August; then widened to $195 or 53% for September.

To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Appended to the simple high-yield "dog" metric, analyst one-year mean price target estimates provided another tool to dig out bargains.

Actionable Conclusion (3): Wall Street Wizard Wonders Wielded Average 16.6% Net Gains from Top 30 Basic Materials Dogs For September 2015

The top thirty sector dogs were graphed below to show relative strengths by dividend and price as of September 16, 2014 versus those projected by analyst mean price target estimates to the same date in 2015.

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 2015.

Historical prices and actual dividends paid from $1000 invested in each of the thirty highest-yielding stocks and the aggregate single share prices of those thirty stocks divided by 3 created the data points for 2014. Projections based on estimated increases in dividend amounts from $1000 invested in the thirty highest-yielding stocks and aggregate one-year analyst target share prices from Yahoo Finance divided by 3 created the 2015 data points shown in green for price and blue for dividends.

Yahoo projected a 8.3% lower dividend from $10K invested in this group, while aggregate single share price was projected to increase by 9% 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 analyst-rated 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's movement opposite of market direction.

Actionable Conclusion (4): Analysts Appraised 10 Basic Materials Sector Dogs To Net 23% to Nearly 45% By September 2015

Just three of the top ten dividend-yielding basic materials dogs were verified as being among the top gainers for the coming year based on analyst 1-year target prices. So this month, the dog strategy for basic materials as graded by Wall St. wizards was again only 30% accurate.

Ten probable profit-generating trades revealed by Yahoo Finance into 2015 were:

Pengrowth Energy Corp. (PGH) was projected to net $538.62, based on dividends plus a mean target price estimate from nine analysts less broker fees. The Beta number showed this estimate was subject to volatility 77% greater than the market as a whole.

Seadrill Limited was projected to net $380.72, based on dividends plus the mean of annual price estimates from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 49% greater than the market as a whole.

Martin Midstream Partners LP (NASDAQ:MMLP) was projected to net $316.51, based on dividends plus a mean target price estimate by seven analysts less broker fees. The Beta number showed this estimate subject to volatility 18% less than the market as a whole.

Atlas Resource Partners was projected to net $280.41, based on estimates from nine analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 52% less than the market as a whole.

Northern Tier Energy LP (NYSE:NTI) was projected to net $272.94, based on estimates from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 4% greater than the market as a whole.

Compressco Partners LP (GSJK) was projected to net $261.02, based on dividend plus mean target price estimates from three analysts less broker fees. The Beta number showed this estimate subject to volatility 18% greater than the market as a whole.

Mid-Con Energy Partners (NASDAQ:MCEP) was projected to net $258.19, based on a mean target price estimate from six analysts, combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 52% greater than the market as a whole.

OCI Partners LP (NYSE:OCIP) was projected to net $446.33, based on estimates from four analysts plus dividends less broker fees. A Beta number was not available for OCIP.

CVR Partners L.P. was projected to net $239.53, based on estimated dividends plus a mean target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 1% greater than the market as a whole.

LinnCo LLC (LNCO) was projected to net $231.82, based on a mean target price estimate from seven analysts, combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 88% less than the market as a whole.

The average net gain in dividend and price was over 30.2% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 18% greater than the market as a whole.

The stocks listed above were suggested only as decent starting points for your basic materials sector dog dividend stock purchase research process. These were not recommendations.

These gains as reported do not factor in any tax problems resulting from distributions. 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.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from www.indexarb.com; www.dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.

Disclosure: The author is long CSCO, GE, PFE, T, VZ.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.