Sizing Up The Consumer Goods Sector's January Dogs

by: Fredrik Arnold

Last month this Dogs of the Index strategist began applying dog dividend methodology to each of eight major market sectors. In alphabetical order these sectors are: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities.

The ninth sector, conglomerates, according to Yahoo Finance, contains just eight companies, five of which pay dividends. Thus the reporter declined to apply Dogs of the Index metrics to such a limited universe, declaring, "such a task is comparable to a dog show judge trying to evaluate a Chihuahua based on St. Bernard conformation standards."

Dogs of the Index Metrics Used to Select The Top Ten 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 10 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 consumer goods sector companies is sorted by yield as of January 20, using to reveal the top 30. Market performance of these 30 selections is then reviewed using four months of historic projected annual dividend history from Yahoo Finance.

Thereafter, today's article goes on to assess the relative strengths of the consumer goods sector top 10 dividend dogs as of January 20 vs. the Dogs of the Dow January 13 stock list. Annual dividends from $1000 invested in the 10 highest-yielding stocks in the sector and index are compared with the aggregate single share prices of the top 10 stocks in the sector and index.

(Click charts to expand)

Consumer Goods Dividend Dogs

The top 10 consumer goods stocks paying the biggest dividends in January represent five industries. Top stock Vector (NYSE:VGR) is from the cigarettes industry. Three of the top 10 basic materials companies are in the same cigarettes industry group, Altria (NYSE:MO), and Reynolds (NYSE:RAI) are the others. Two business equipment companies are Pitney Bowes (NYSE:PBI) and Virco (NASDAQ:VIRC). There are also two personal products industry companies: CCA Industries (NYSEMKT:CAW), and United - Guardian (NASDAQ:UG). The balance of the top 10 are: office supplies, Standard Register (NYSE:SR-OLD); textiles - apparel clothing, Cherokee (NASDAQ:CHKE); auto parts, Douglas Dynamics (NYSE:PLOW).

Of the top 30, five are in the cigarettes industry and four represent personal products. Other industries represented by more than one company are: textiles-apparel clothing, with three; office supplies, business equipment, auto parts, paper and paper products, food, and electronic equipment, with two.

Vertical Moves in Consumer Goods Dividend Dog Stocks

Going back four months, Vector has claimed the top of this list by yield. Meanwhile, the middle and bottom of the list featured the most active shares. For instance, Cherokee in November moved from 10th place by yield to fifth by virtue of tanking from $14.33 to $13.19 in one month, then dropped further to fourth place at $11.68 in December, and plummeted further to take third place at $10.47 in January. Conversely B&G Foods (NYSE:BGS) gained value moving from 11th place at $17.81 in October to 29th place at $22.80 in December, gaining more in price to $23.79 in January but slipping back up to slot 28 by yield.

Color code shows: (Yellow) companies listed in first position at least once between October 2011, and January 2012; (Cyan Blue) companies listed in 10th position at least once between October 2011, and January 2012; (Magenta) companies listed in 20th position at least once between October 2011, and January 2012; (Green) companies listed in 30th position at least once between October 2011, and January 2012. Duplicates are depicted in color for highest ranking attained.

Dividend vs. Price Results for Consumer Goods vs. Dow Dogs

Below is a graph of the relative strengths of the top 10 consumer goods dividend sector stocks by yield as of January 20, 2012, compared with those of the Dow. Using four months of historic projected annual dividend history from $1000 invested in the 10 highest yielding stocks each month and the total single share prices of those 10 stocks creates the data points for each month shown in green for price and blue for dividends.

Conclusion: A Purebred Team of Retrievers Stays Steady

The January consumer goods collection of 30 dividend payers shows steady horizontal market performance at the four monthly points surveyed.

Meanwhile, the Dow index moved to within $3.50 of convergence as dividends from $1k invested in the top 10 nearly overlap aggregate total single share prices this month. The consumer goods sector top 10 show bigger dividends (with equally bigger risk) at a $236 lower aggregate share price than the Dow as of January 20.

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 have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.

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