Are Howling Energy Dogs Atop Contender List Partying Or Parting?

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Includes: AHGP, APU, ARLP, DCP, EPD, ETE, GEL, MUR, OKE, PAA, STON, SXL, VGR, WMB
by: Fredrik Arnold

Summary

Ten top yielding Contenders (APU, GEL, OKS, STON, DPM, PAA, ETE, WMB, ARLP, AHGP) flaunted annual yields averaging 14% and charged bullishly as Dow dogs did the same after March.

50 top Dog Contenders (with 10 to 24 years of regular dividend hikes) ranged in yield from 3.62% to 25.2% as of April 8 closing prices.

Analyst 1yr. targets anticipated average 11.96% upside and 17.33% gains from thirty Contenders. Gains of 23.2% to 86.17% showed for AHGP, PAA, GEL, VGR, SXL, STON, ETE, ARLP, WMB.

Two Contenders cast analyst estimated downsides of 9.97% & 14.36%.

Analysts reported 54.16% more net gain from $5k invested in the lowest priced five of ten top yielding Contender dogs than from the same investment in all ten.

Contender Dogs Spring Forward

Yield (dividend/price) results from David Fish's Dividend Contenders Index members market closing prices of April 8 were paired with annual dividends projected by dripinvesting.org as of March 31. That data (charted below) showed three of nine business sectors represented by top ten Contenders by yield: basic materials, services, and utilities. Those ten stocks posted yields from 8.5% to 25.2%.

Actionable conclusions by yield, target price upsides and net gains were drawn below as top Contender dogs for April were uncovered, step by step.

Actionable Conclusion (1) 10 Dividend Contender Dogs Yield Averaged 14.06% as of April 8

Seeking Alpha reader requests prompted this series of index-specific articles reporting dividend yield plus price upside results for these indices: Dow 30; S&P 500; S&P Aristocrats; NASDAQ 100; Champions; Contenders; Challengers; CCC Combined; and Global. Bonus reports cover Bad Boy AllStars, and Sector Leaders.

Fifty For The Money

This article was written to reveal bargain dividend stocks to buy and hold up to one full year. See Dow 30 article for explanation of the term "dogs" for stocks reported based on Michael B. O'Higgins book "Beating The Dow" (HarperCollins, 1991). Now named Dogs of the Dow, O'Higgins system works to find bargains in any collection of dividend paying stocks. Utilizing analyst price upside estimates has expanded the stock universe to include popular growth equities, as desired.

Dog Metrics Mark 50 Contender Stocks by Yield

David Fish's Contenders list (from here) as of April 8 paid increasing dividends for 10 to 24 years. Contender stocks listed below were rated by yield to reveal the top ten. Price data was sourced from Yahoo.com. Annual dividend calculations as of 3/31 came from dripinvesting.org.

As mentioned above, just three of nine Yahoo Finance market sectors were represented on the top ten contenders dog list selected by yield, basic materials, and utilities.

Basic Materials captured all but the seventh and tenth slots: Alliance Holdings GP LP (NASDAQ:AHGP) [1]; Alliance Resource Partners LP (NASDAQ:ARLP) [2]; Williams Companies (NYSE:WMB) [3]; Energy Transfer Equity LP (NYSE:ETE) [4]; Plains All American Pipeline LP (NYSE:PAA) [5]; DCP Midstream Partners LP (DPM) [6]; ONEOK Partners LP (OKS) [8]; Genesis Energy LP (NYSE:GEL) [9].

Finally, two non-basic sector firms placed seventh and tenth. StoneMor Partners LP (NYSE:STON) [7] from services, and the lone utility, AmeriGas Partners LP (NYSE:APU) [10] completed the top ten contender dogs by yield for April.

Contenders Dividend vs. Price Results Complemented Dow Dogs

Periodic strength of ten top Contenders by yield, graphed below as of 4/8/2016 was compared to that 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 price history of those ten stocks created the data points shown in green for price and blue for dividend.

Actionable Conclusions: (2) Contenders Charged Bullishly, As (3) Dow Dogs Did Too

Contender top ten dividend from $10k invested as $1k in each dog fell 2.8% as aggregate single share price inclined 2.7% after March. The Contenders further shrank the distance to an overbought condition and moved the gap from 5.46 to 5.11 times more than the aggregated single share price of those stocks between March 22 and April 8.

Dow dogs, also charged into April, as aggregate single share price for those ten jumped 10.8% between March 22, and April 8 while annual dividend from $10k invested as $1K in each of the top ten declined 7.3% according to IndexArb.

As a result, the Dow dogs overbought condition (where aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k each in those ten) swelled wider again after March.

Actionable Conclusion (4): Dow Dogs Stay Overbought

The overhang set a new annual record in May at $421 or 117%. The July/August market set the gap at $392 or 106%. September shrank the gap to $279 or 67%. October expanded the chasm again to $323 or 82%. November-December constricted the gap somewhat to $271 or 70%. January narrowed the gap slightly to $246 or 57%. In February when $30 Intel with its dividend dollar replaced Procter & Gamble's $75 price and $2.80 dividend, the gap of Dow price over dividend grew to $265 or 65%. But P&G reclaimed slot ten in March to join big dogs IBM and Boeing to put the gap to $406 or 106%. Aprils expansion, fueled by JPM making the top ten Dow, went to $414 or 107%.

This gap between high share price and low dividend per $1k invested shows an overbought condition. Meaning, these are low risk and low opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend was $26.18.

Compared to the DOW, the Contender ten for the year has progressively retreated in a pattern where aggregate dividend value of $1k investments in each steadily rose above the aggregate single share price. March and April brought the two data points closer together. And, in great contrast to the Dow, Contender Dog top ten average price per dollar of annual dividend was $8.08 as of April 8.

If Dow prices can decline about 30-35% they would again become attractive dividend buys! As it stands, the Dow has become an index of growth stocks as their dividends have been progressively devalued by the marketplace. Should Dow prices plunge, resulting dividends would become more valuable.

Actionable Conclusions: (5) Ten Contender Dogs Sought A 32% Average Upside, While (6) Two Slid To A 12.2% Downside By April 2017

To quantify top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metrics, analyst mean price target estimates were another tool used to dig out bargains.

Actionable Conclusions: Wall St. Analysts Projected (7) 11.96% Average Upside & (8) 17.32% Average Net Gain from Top 30 Dividend Contenders By April, 2017

Top thirty dogs from David Fish's Dividend Contenders list were graphed below as of April 8, 2016 as compared to analyst mean price target estimates for the same date in 2017.

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 predicted annual dividend amounts to find the return.

Historic prices and actual dividends paid from $30,000 invested as $1k in each of the highest yielding stocks and the aggregate single share prices of those thirty stocks divided by 3 created data points for 2016. 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 2017 data points green for price and blue for dividend.

Analyst data reported by Yahoo finance projected a 17.8% lower dividend from $30K invested as $1k in each stock in this group while aggregate single share price was projected to increase 9.4% 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 had a better history of accurate estimates.

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 price movement opposite of market direction.

Actionable Conclusion (9): Analysts Argued Ten Dividend Contender Dogs Would Net 23.2% to 86.2% By Mid-April 2017

Seven of ten top dividend yielding Contender dogs were among the ten gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy as graded by Wall St. wizards was 70% accurate.

Ten probable profit generating trades were revealed by Thomson/First Call in Yahoo Finance into 2017:

Williams Companies was projected to net $861.77 based on dividends plus the median target price estimate from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 45% more than the market as a whole.

Alliance Resource Partners was projected to net $720.96 based on a median target price estimate from three analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 29% less than the market as a whole.

Energy Transfer Equity LP was projected to net $668.12based on dividends plus the lowest of annual price estimates from six analysts less broker fees. The Beta number showed this estimate subject to volatility 90% more than the market as a whole.

StoneMor Partners LP was projected to net $358.04 based on dividends plus median target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 52% less than the market as a whole.

Enterprise Products Partners (NYSE:EPD) was projected to net $314.43 based on a median target price estimate from twenty-four analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 19% less than the market as a whole.

Sunoco Logistics Partners LP (NYSE:SXL) was projected to net $302.62 based on dividends plus median target price estimate from fifteen analysts less broker fees. The Beta 11% less than the market as a whole.

Vector Group Ltd. (NYSE:VGR) was projected to net $300.41 based on dividends plus the annual price estimate from one analyst less broker fees. The Beta number showed this estimate subject to volatility 55% less than the market as a whole.

Genesis Energy LP was projected to net $292.42 based on dividends plus the median of annual price estimates from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 22% more than the market as a whole.

Plains All American Pipeline LP was projected to net $269.42 based on dividends plus the median rates of twenty analysts less broker fees. The Beta 8% less than the market as a whole.

Alliance Holdings Group LP was projected to net $231.97 based on dividends less broker fees. No upside was projected by analysts. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.

The average net gain in dividend and price was 43.2% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 6% less than the market as a whole.

Actionable Conclusion (10): (Bear Alerts) Analysts Psyched Two Contender Dogs To Show Net Losses Averaging 7.34% By 2017

Probable losing trades revealed by Thomson/First Call in Yahoo Finance in 2017 were:

ONEOK Inc. (NYSE:OKE) was projected to lose $37.67 based on dividend and a median target price estimate from fourteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 38% more than the market as a whole.

Murphy Oil Corp. (NYSE:MUR) was projected to lose $109.62 based on dividend and a median target price estimate from ten analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 54% less than the market as a whole.

The average net loss in price plus broker fees including an 7.69% on $2k invested as $1k in each of these two dogs. This loss estimate was subject to average volatility 8% less than the market as a whole.

Dog Metrics Extracted Bargains

Yield (dividend / price) results from Yahoo.com and dripinvesting.org for Contender dividend stocks as of market closing prices April 8 did the ranking.

As noted above, just three of nine Yahoo Finance market sectors were represented in the top ten contenders dog list selected by yield below: basic materials, services, and utilities.

Actionable Conclusions: (11) 5 Lowest Priced of Top Ten Highest Yield Contender Dogs Promised 55.04% VS. (12) 3571% Net Gains by All Ten by April 8, 2017

$5000 invested as $1k in each of the five Lowest priced stocks in the top ten contenders dividend kennel by yield were alleged by analyst 1 year targets to deliver 54.16% more net gain than the same amount invested in all ten. The fourth lowest , was projected to deliver the best net gain of 86.18%.

Lowest priced five contenders dogs for April 8 were: Energy Transfer Equity LP; Alliance Resource Partners LP.; Alliance Holdings GP LP; Williams Companies; Plains All American Pipeline LP, with prices ranging from $8.08 to $21.56.

Higher priced five contenders dogs for April 8 were: StoneMor Partners LP; DCP Midstream Partners LP; Genesis Energy LP; ONEOK Partners LP; AmeriGas Partners LP , whose prices ranged from $25.50 to $43.35.

This distinction between five low priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed for beating the Dow.

The added scale of projected gains based on analyst targets contributed a unique element of "market sentiment" gauging upside potential. It provided a here and now equivalent of waiting a year to find out what might happen in the market. Its also the work analysts got paid big bucks to do.

Caution is advised, however, as analysts are historically 20% to 80% accurate on the direction of change and about 0% to 20% accurate on the degree of the change.

The stocks listed above were suggested only as reference points for a Contender dog stock investigation in late March, 2016. These were not recommendations.

See my instablog for specific instructions about how to best use the dividend dog data featured in this article.--Fredrik Arnold

Gains/declines as reported do not factor-in any tax problems resulting from dividend, profit, or return of capital distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.

Five of these Contender pups can be found on the the now 34 Dogs Of The Week (DOTW) listed on The Dividend Dog Catcher premium site. Click here for more information or to subscribe.

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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 index 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.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from indexarb.com; analyst mean target prices by Thomson/First Call via Yahoo Finance.

Disclosure: I am/we are long CSCO, PFE, 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.