February Consumer Goods Sector Dogs Find A Bear

by: Fredrik Arnold

This monthly report series began in December, 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, contained just eight firms, five of which paid dividends. Thus we cannot apply dogs of the index metrics to such a limited universe:

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 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 consumer goods sector companies is sorted by yield (as of February 24) using Ycharts.com to reveal the top thirty. Market performance of these thirty selections is then reviewed using four months of historic projected annual dividend history from Yahoo Finance, with annual divided projections reviewed and adjusted for market realities.

Thereafter, today's article goes on to assess the relative strengths of the consumer goods sector top ten dividend dogs as of February 24 vs. the Dogs of the Dow January 10 stock list. Annual dividends from $1000 invested in the ten highest yielding stocks in the sector and index are compared to the aggregate single share prices of the top ten stocks in the sector and index.

Consumer Goods Dividend Dogs (Click to enlarge)

The top ten consumer goods stocks paying the biggest dividends in January represent five industries. Top stock Standard Register (NYSE:SR-OLD) is from the Office Supplies Industry. Second dog, Vector (NYSE:VGR) is from the cigarettes industry. Three of the top ten basic materials firms are in the same cigarettes industry group, Altria (NYSE:MO), and Reynolds (NYSE:RAI) are the others. Two equipment firms are Pitney Bowes (NYSE:PBI) and Royal Philips Electronics (NYSE:PHG). There are also two personal products industry firms: CCA Industries (CAW), and United - Guardian (NASDAQ:UG). The balance of the top ten are: textiles - apparel clothing, Cherokee (CHKE); auto parts, Douglas Dynamics (NYSE:PLOW).

Vertical Moves in February's Consumer Goods Dogs

Going back four months, Vector claimed the top of this list by yield. In February, Standard Register became top dog with a yellow tint by virtue of a share price slump of 22.92%.

Color code shows: (Yellow) firms listed in first position at least once between November 2011 and February 2012; (Cyan Blue) firms listed in tenth position at least once between November 2011 and February 2012; (Magenta) firms listed in twentieth position at least once between November 2011 and February 2012; (Green) firms listed in thirtieth position at least once between November 2011 and February 2012. Duplicates are depicted in color for highest ranking attained.

(Click to enlarge)

Bullish vertical moves made since January 20 included the aforementioned Vector Group, with a share price increase of 6.0%; Douglas Dynamics had a 2.48% price gain; Altria Group showed an 4.5% increase; Reynolds American posted a 2.64% price gain; Cherokee had a 8.63% price gain; Virco Manufacturing Corp (NASDAQ:VIRC) exited the top ten as a result of its 18.72% price gain.

Bearish moves for the same period were experienced by Standard Register with its aforementioned 22.92% price decline; Pitney Bowes showed a 7.72% price slump; CCA Industries made a .602% decline; United - Guardian climbed higher as a top ten consumer goods dog by yield after posting a .818% decline.

Dividend vs. Price Results vs. Dow Dogs

Below is a graph of the relative strengths of the top ten consumer goods dividend sector stocks by yield as of February 24, 2012, compared to those of the Dow. Using four months of the 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, we've created the data points for each month shown in green for price and blue for dividends.

(Click to enlarge)

Conclusion: Consumer Goods Dogs Find A Bear

The February consumer goods collection of top ten dividend payers showed steady horizontal market performance in price at the four monthly points surveyed. However, an increase in projected dividends from $1k invested in each of the top ten from a steady share price displayed a bearish trend.

Meanwhile, the Dow index moved beyond convergence as dividends from $1k invested in the top ten sank lower than aggregate total single share prices in February. The consumer goods sector top ten showed $301 more dividends (with equally bigger risk) at a $300 lower aggregate share price for the top ten dogs than those of the Dow as of February 24.

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, INTC, JNJ, CVX.

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.