Utilities Sector Dogs Vs. December Dogs Of The Dow

by: Fredrik Arnold

For an intro to my "Dogs" series of articles, please go here for those already published.

The conglomerate sector contains just eight firms, five of which pay dividends, so dogs of the index metrics do not apply in such a limited universe. Such a task is comparable to a dog show judge trying to evaluate a Chihuahua based on St. Bernard breed conformation standards.

Dogs of the Index Metrics Used to Select The Top Ten Utilities Sector Stocks

Two key metrics determine the yields that rank index or sector dog stocks: (1) stock price; (2) annual dividend. Dividing the annual dividend by the price of the stock declares the percentage yield by which each dog stock is ranked. Investors select portfolios of five or ten stocks in any one index or sector by yield to trade. They await the results from their investments in the lowest priced, highest yielding stocks they selected and pray that the price of every stock they now own climbs higher (having locked in a high yield percentage at purchase).

This Dogs of the Index strategy, popularized by Michael B. O'Higgins in the book "Beating The Dow" (HarperCollins, 1991), reveals how low yielding stocks whose prices increase (and whose dividend yields therefore decrease) can be sold off once each year to sweep gains and reinvest the seed money into higher yielding stocks in the same index.

Comparative Methods Used

First, the entire list of utilities sector companies is sorted by yield as of December 16 using Ycharts.com to reveal the top thirty. Market performance of these thirty selections is then reviewed using three months of historic projected annual dividend history from Yahoo Finance.

Thereafter, today's article goes on to assess the relative strengths of the utilities sector top ten dividend dogs vs. the Dogs of the Dow December 9 stock list. Here we look at annual dividends from $1000 invested in the ten highest yielding stocks in each sector or index versus the aggregate single share prices of the top ten stocks in each sector or index.

Utilities Sector Dividend Dogs

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The top ten utilities stocks paying the biggest dividends for December represent one sector. Top utilities sector stock NKA is from the Gas Utilities industry. Four of the top ten utilities firms ranked by dividend yield are in that same Gas Utilities industry group. Four more in the top ten represent the Diversified Utilities industry. The remaining two are Electric Utilities.

Of the top thirty utilities sector stocks by yield, twelve firms are in the Electric Utilities industry. Other utilities sector industries represented by more than one firm are: Diversified Utilities , with nine; Gas Utilities, with eight. Foreign Utilities lists one industry representative (though at least six of the thirty listed are headquartered outside North America).

Vertical Moves in Utilities Dividend Dog Stocks

Going back three months, NKA claimed the top of this list by yield in October and held on into December. The action throughout the utilities list is neutral to somewhat bearish. A notable exception, however, is made by Huanang Power (NYSE:HNP) An Electric Utility firm in China. From October to December HNP moved from sixth place by yield to thirteenth by virtue of a market price increase from $16.35 to $21.02 per share for the period, a 28.6% gain. It's hard to pick the biggest loser in utilities but one of the more glaring is TransAlta Corporation (NYSE:TAC) a Canadian firm whose price slid from $21.85 in October to $21.36 in November to $19.71 in December for a 9.8% decline over two months.

Color code shows: (Yellow) firms listed in first position at least once between October and December 2011; (Cyan Blue) firms listed in tenth position at least once between October and December 2011; (Magenta) firms listed in twentieth position at least once between October and December 2011; (Green) firms listed in thirtieth position at least once between October and December 2011. Duplicates are depicted in color for highest ranking attained.

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Below is a graph of the relative strengths of the top ten utilities sector stocks by yield as of December 16, 2011 compared to those of the Dow. Using three months of historic projected annual dividend history from $1000 invested in the ten highest yielding stocks each month and the total single share prices of those ten stocks creates the data points for each month shown in green for price and blue for dividends.

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Conclusion: This Team of Non-Sporting Dogs Rests

This utilities collection of 30 dividend payers shows steady market performance during the recent unsettled months. The Dow index exhibited near convergence of both dividends from $1k invested in the top ten with aggregate total single share prices over the past three months. In contrast, the utilities sector top ten is more diverged but prices and dividends remained steady like the Dow chart. The greater divergence of the utilities sector chart portends greater risk per share price than the Dow.

At the end of each month, two summaries will conclude this new series of articles by showing comparative results of yield and price for all eight sectors reported: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities.

Disclosure: I am long T, VZ, CVX, JNJ, INTC.

Disclaimer: This article is for informational and educational purposes only and shall 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 are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.