Energy Sector SML Dogs For May
Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of May 13, 2016 for Small, Mid, & Large cap energy sector stocks. 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 led to the actionable conclusions discussed below.
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 yr. target projections.
Now the series is being revised to report on eleven sectors as defined by Morningstar and tracked here: Basic Materials; Communication Services; Consumer Cyclical; Consumer Defensive; Energy; Financial Services; Healthcare; Industrials; Real Estate; Technology; Utilities.
This article intended to reveal bargain stocks to buy and hold up to one 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 expanded the stock universe to include popular growth equities, as desired.
Dog Metrics Tracked Energy Stocks by Yield
Actionable Conclusion (1): Midstream Firms Boast Top Yields As Refining & Integrated Energy Dogs Post 3 Each in the May Top Ten
The midstream industry sourced three of the top ten energy stocks showing the biggest dividend yields for May, while Refiner/Marketers and Integrated firms also posted three each.
Third was the top of three refining & marketing outfits, CVR Energy (NYSE:CVI) . The other two refining & marketing firms placed eighth, and ninth, Alon USA Energy (NYSE:ALJ) , and Western Refining (NYSE:WNR) .
Three integrated energy firms grouped themselves smack in the middle of the top ten energy yield pack in fifth through sixth slots, Repsol, (OTCQX:REPYY) , BP p.l.c. (NYSE:BP) , and Royal Dutch Shell (NYSE:RDS.A) .
Finally, a driller placed tenth, Ensign Energy Services (ESI.TO))  to complete the top ten energy sector dogs by yield list as of May 13.
Energy Top Ten Price vs. Dividend Results Opposed Dogs of The Dow
Relative strengths of the top ten energy sector dogs graphed below by yield were plotted as of market close 5/13/2016 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 Conclusions: (2) Energy Top Ten Charged Bullishly As (3) Dow Dogs Retreated Bearishly
Dividend from $10k invested as $1k in each of the energy top ten dogs fell steeply into May, while the aggregate single share price of the top ten increased. Dividend dropped at a rate of 69% while total single share price rose 170%. A consequence of transitioning this energy sector list from the old basic materials group.
Dow dogs retreated bearishly after April. Projected annual dividend from $10k invested as $1K in each of the top ten increased 0.5%. At the same time, aggregate single share price tumbled 19% to sound that bearish growl.
The Dow dogs overbought condition (in which aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each) constricted in May.
Actionable Conclusion (4): Dow Dogs Narrowed Their Overbought Status
The overhang was $392 or 106% in June. The Dow bubble deflated big time as Dupont replaced IBM in the ten slot of the top ten for July to peg the gap at $237 or 63%, then inflated again as IBM replaced Pfizer to widen the gap to $343 or 89% for August. September brought some sanity back to the runaway Dow when the gap stood at $279 or 67%. October increases in price by CVX and XOM pushed the gap to $334 or 85%.
November changed out MCD for WMT, and GE for KO. The resulting price over dividend gap went to $303 or 78%. As of December 4 the gap stood at $302 or 78%. Come January 12, prices of the ten Dow top dogs fell, and dividends rose, as Boeing replaced General Electric to push the overbought gap down to $215 or 53%. February moves put the gap at $208 or 48%. March put the chasm at $293 or 73%. April saw JPMorgan Chase replace Merck in the top ten to widen the gap to $394 or 102%. May's retreat was triggered by Intel and Merck returning to the top ten in place of JPMorgan and Proctor & Gamble. So, the overbought gap shrank to $357 or 93%.
This gap between high share price and low dividend per $1k invested defines the Dow over-bought condition. Meaning these are low risk and low opportunity Dow dog stocks. The Dow top ten May average price per dollar of annual dividend is $26.21.
Compared to the Dow dogs, the Energy top ten, while volatile, are far from overbought, narrowing their "normal" pattern of dividends above price.
In marked contrast to the Dow, Energy Dog top ten average price per dollar of annual dividend came in at a low $4.45 as of May 13, that is about 1/6th the price of an annual dollar of Dow dividends.
Wall Street Wizard Workers Found Upside/Downside Dogs For May
One-year median 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 2016 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 were considered best for the most accurate mean target price estimate.
Actionable Conclusions: (4) Ten Energy Sector Dividend Dogs Showed Upsides of 12.45% to 50.48% per Analyst 1 yr. Targets & (5) Two Cast 7.34% & 12.15% Downsides
Dog Metrics Marked May Energy Stocks By Yield
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" metrics, analyst mean price target estimates provided another tool to dig out bargains.
Actionable Conclusions: Wall St. Analysts Predicted (6) Average 8.36% Upsides; (7) & 13.6% Net Gains from Top 30 Energy Dogs By May, 2017
Top thirty sector dogs were graphed below to show May 13, 2016 closing prices compared those projected by analyst mean price target estimates to 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 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 2017.
Historic 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 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 dividends.
Analysts as reported by Yahoo Finance projected a 6.3% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 7.3% in the coming year (May to May).
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 stocks movement opposite of market direction.
Actionable Conclusion (8): Analysts Asserted 10 Energy Sector Dogs Could Net 15.6% to 54.8% By May, 2017
Four of ten top yielding energy sector dogs were verified as being among the top gainers for the coming year based on analyst 1 year target prices. So this month analysts graded the dog strategy as 40% accurate.
Ten probable profit generating trades were revealed by Thomson/First Call as reported in Yahoo Finance for 2017:
Vermilion Energy (NYSE:VET) was projected to net $548.10 based on estimated dividends plus mean target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.
Western Refining was projected to net $477.24 based on dividends plus the median of annual price estimates from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 34% more than the market as a whole.
Archrock (NYSE:AROC) was projected to net $412.93 based on the low target price estimate from six analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 301% more than the market as a whole.
Williams Companies was projected to net $352.61, based on dividend plus median target price estimates from eight analysts less broker fees. The Beta number showed this estimate was subject to volatility 42% more than the market as a whole.
HollyFrontier (NYSE:HFC) was projected to net $342.38 based on the median of estimates from fourteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 20% more than the market as a whole.
Alon USA Energy was projected to net $237.41 based on a median target price estimate from eight analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 2% more than the market as a whole.
Total (NYSE:TOT) was projected to net $200.61 based on the lowest target price estimate from seven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 10% less than the market as a whole.
BP p.l.c. was projected to net $200.21 based on estimates from ten analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 11% more than the market as a whole.
TransCanada (NYSE:TRP)was projected to net $194.05 based on dividends plus the median target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 24% less than the market as a whole.
Pembina Pipeline (NYSE:PBA) was projected to net $156.08, based on dividends plus a median target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 23% less than the market as a whole.
Average net gain in dividend and price was 31.22% The average Beta number showed these estimates subject to volatility 89% greater than the market as a whole.
Actionable Conclusion (9): (Bear Alert) Analysts Predicted Two Energy Dogs To Show Net Losses of 4.54% & % 5.27% By May, 2017
Two probable losing trades revealed by Thomson/First Call in Yahoo Finance in 2017 were:
Murphy Oil (NYSE:MUR) was projected to lose $45.44 based on dividend and a median target price estimate from seventeen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 112% more than the market as a whole.
Targa Resources (NYSE:TRGP) was projected to lose $52.70 based on dividend and a median target price estimate from seventeen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 134% more than the market as a whole.
The average net loss in dividend and price with broker fees included was 4.54% on $2k invested as $1k in each of these two dogs. The beta number showed this estimate subject to volatility 123% more than the market as a whole.
A Graphic Display of Energy Sector Year To Date Price Histories For Contrarians
Year to date upside price performance of two energy "losers" predicted by analysts is in mighty contrast to the marked downside year to date price history for two month's analysts upside energy star stock, AROC and two other top dogs. Momentum is not on the side of the forecaster predictions, except for VET which is on the rise year to date.
Dog Metrics Found 1.5% More Gains From Five Lowest Priced Highest Yield Energy Sector Dogs
Ten small, mid, and large cap energy equities were culled by yield from 50 common stock choices from here. Yield (dividend / price) results verified by Yahoo Finance did the ranking.
Actionable Conclusions: (10) Analysts Project 5 Lowest Priced of Ten Highest Yield To Fetch 15.63% VS. (11) 15.4% Net Gains From All Ten Energy Dogs as of May 13, 2017
$5000 invested as $1k in each of the five Lowest priced stocks in the top ten energy dividend kennel by yield were predicted by analyst 1 year targets to deliver 1.51% more net gain than $5,000 invested as $500 in each of the top ten. The seventh lowest priced energy dividend dog, Western Refining , was projected to deliver the best net gain of 47.72%.
Lowest priced five energy dividend dogs for May 13 were: Ensign Energy Services (ESI.TO); Alon USA Energy; Veresen (VSN.TO); Repsol; Williams Companies, with prices ranging from $7.15 to $19.35.
Higher priced five energy dividend dogs for May 13 were: CVR Energy; Western Refining; BP p.l.c.; Targa Resources; Royal Dutch Shell, whose prices ranged from $20.46 to $49.64
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. It mostly works here too.
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.
A 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.
Stocks listed above were suggested only as decent starting points for a small, mid, and large cap energy equities dog dividend stock investment research process in mid-May, 2016. These were not recommendations.
See my instablog for specific instructions about how to best use the dividend dog data featured in this article.
Gains/declines as reported did 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.
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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 ycharts.com; dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.
Disclosure: I am/we are long CSCO, INTC, 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.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.