February Summaries For 8 Sector Dogs And The Dow

by: Fredrik Arnold

This end of month installment summarizes a series of articles that compared relative strengths of eight stock sectors by (1) yield and (2) dividend vs. price gaps using projected annual dividends from $1000 invested in the ten highest yielding stocks in each index as of February. Results for the Dow were included for a baseline standard. This effort was part an ongoing one to respond to the question, "which dividend stocks were good, better, best, bad or ugly in February?"

The research was also in keeping with Yale professor Robert Shiller's observation: "People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes." Hence this article graphically depicts the gyrations.

Dogs of the Index Metrics Selected Ten in Each Group

Two key metrics determined the yields that ranked index or sector dog stocks: (1) stock price; (2) annual dividend. Dividing the annual dividend by the price of the stock declared the percentage yield by which each dog stock was 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.

Sector Synopses

Top ten dogs for each sector displayed their annual dividends from $1000 invested in the ten highest yielding stocks in the sector and index compared to the aggregate single share prices of the top ten stocks therein to produce the summary graphs shown below:

Basic Materials

Top ten basic materials stocks that paid the biggest dividends in February were mostly in the oil and/or gas industry: Whiting (NYSE:WHX); Ferrellgas (NYSE:FGP); Calumet (NASDAQ:CLMT); Enerplus (NYSE:ERF); BreitBurn (BBEP); Permian Basin Trust (NYSE:PBT). Only four of the top ten basic materials firms did not mention oil and gas in their industry description: Great Northern (NYSE:GNI); Oxford (OXF); Rhino (NYSE:RNO) CVR Partners (NYSE:UAN).

Consumer Goods

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


Stocks that paid the biggest dividends in the financial sector February top ten represented six industries. Top stock Armour (NYSE:ARR) was one of six REITs in the top ten. Four, American Capital (NASDAQ:AGNC), Armour, Two Harbors (NYSE:TWO), and CYS Investments (NYSE:CYS), were residential REITs; Chimera (NYSE:CIM) was a diversified REIT, and Resource (NYSE:RSO) was a retail REIT. The remaining four non-REITs included Life Partners (NASDAQ:LPHI), life insurance, Invesco (NYSE:IVR), mortgage investment, BBVA Banco (NYSE:BFR), foreign regional bank, and Arlington (NYSE:AI), investment brokerage, in the top ten.


Top healthcare sector stock PDL BioPharma (NASDAQ:PDLI) was the only biotechnology firm in the top ten. Similarly, NeoStem (NBS), was the only specialized health services firm. Five drug manufacturers - major firms appeared as February top ten dogs: AstraZeneca Group (NYSE:AZN); Eli Lilly (NYSE:LLY); GlaxoSmithKline (NYSE:GSK); Sanofi (NYSE:SNY); Merck (NYSE:MRK). Daxor (NYSEMKT:DXR) represented the medical instruments & supplies industry. Psychemedics (NASDAQ:PMD) appeared as a medical laboratories and research firm. The remaining one in the top ten was PetMed Express (NASDAQ:PETS), a drug delivery firm.

Industrial Goods

Industrial goods sector stocks paying the biggest dividends in February represented seven industries. Top industrial goods sector stock Veolia Environement (VE) was one of three waste management firms in the top ten. The others were Waste Management (NYSE:WM); American Ecology (NASDAQ:ECOL). The top ten includes two residential construction firms: MDC Holdings (NYSE:MDC); Gafisa (NYSE:GFA). Also included were two aerospace & defense products & services firms: Lockheed Martin (NYSE:LMT); Elbit Systems (NASDAQ:ESLT). The remaining three represent one industry each: Highway Holdings (NASDAQ:HIHO), metal fabrication; Skyline (NYSEMKT:SKY), manufactured housing; KSW Inc.(NASDAQ:KSW), general contractors.


February showed five industries represented in the top ten services sector. Shipping was dominant with six firms: Baltic Trading (NYSE:BALT); Navios Maritime Partners (NYSE:NMM); Teekay Tankers (NYSE:TNK); Globus Maritime (NASDAQ:GLBS); Knightsbridge Tankers (VLCCF); DHT Holdings (NYSE:DHT). The remaining four industries included: Wholesale, Other represented by, Educational Development Corporation (NASDAQ:EDUC); Staffing & Outsourcing Services featured Compass Diversified Holdings (NYSE:CODI); Personal Services contributed StoneMor Partners (NYSE:STON); Apparel Stores listed Christopher & Banks (NYSE:CBK).


February placed all new firms at the top and cut the number of industries represented from eight to five in the technology sector. Long Distance Carriers was denoted by top dog Otelco (OTT); Diversified Communications was illustrated by IDT Corporation (NYSE:IDT); Wireless Communications included two firms: Cellcom Israel (NYSE:CEL), and Partner Communications (NASDAQ:PTNR); Telecom Services Foreign included two firms: Telefonica (NYSE:TEF), and Telecom New Zealand (NZT) ; Telecom Services Domestic was represented by three firms: Frontier Communications (NYSE:FTR), Windstream Corporation (NASDAQ:WIN), and Consolidated Communications Holdings (NASDAQ:CNSL); Information Technology Services joined the top ten through MIND C.T.I (NASDAQ:MNDO).


Four industries were tops in February. Gas firms were clustered at or near the top of the list: Inergy, L.P. (NRGY); Niska Gas Storage (NYSE:NKA); Suburban Propane (NYSE:SPH); Amerigas Partners (NYSE:APU). Two Electric Utilities were listed: Atlantic Power Corporation (NYSE:AT); Pepco Holdings, Inc. (NYSE:POM). Three Diversified Utilities made the list: TransAlta Corporation (NYSE:TAC); Otter Tail Corporation (NASDAQ:OTTR); Exelon Corporation (NYSE:EXC). One Foreign Utility was listed: CPFL Energia (NYSE:CPL).

Dow Industrials

Three technology firms paid the biggest dividends in the Dow for February: (1) AT&T (NYSE:T); (2) Verizon (NYSE:VZ); (8) Intel (NASDAQ:INTC). As it has for the past year, AT&T continued atop this list. The rest of the Dow dogs included three healthcare firms: (3) Merck (MRK); (4) Pfizer (NYSE:PFE); (6) Johnson & Johnson (NYSE:JNJ). One industrial made the dog list: (5) General Electric (NYSE:GE). One consumer goods firm is included: (7) Procter & Gamble (NYSE:PG); with two basic materials: (9) Dupont (DD); (10) Chevron (CVX).

All Together Now

Each graph below shows monthly points of comparison between annual projected dividends resulting from $10,000 invested as $1,000 each in the top ten high yield stocks (blue points) versus the total prices of one share of each of the ten stocks (green points) by index. Grouped together the graphs display five months of comparative gyrations of eight sectors and one index.

Relative Risk of Dogs by Sector for February

A reader request to "add relative financial data on the companies selected" for a previous article comparing indices by annual yield projections has inspired a simple tool to gauge investment risk. The tool is best applied prior to the purchase of any 5 or 10 Dogs of the Index stocks at any point during the year. This information will continue to be reviewed monthly as one step toward Robert Shiller's admonishment to "make conservative preparations for possible bad outcomes."

Sector Dogs Vie for Dividend Dominance

The following graph shows annual dividends projected from $1000 invested in each of ten stocks with the top yields in eight sectors compared to those of the Dow. The chart plots projected yields as of a specific purchase date near the middle of each month in the previous quarter plus January. Projected yields increased in the sectors when average stock prices fell.

Relative yield strengths differentiate the sectors on the graph. The Dow shows the lowest yield with a low trajectory swing down. Healthcare, industrial goods, basic materials, technology and financial also vectored down by yield. Otherwise consumer goods, utilities and services sectors all threw higher yields as their component stock prices dropped during the quarter.

Annual Dividends Forecast from $1k Invested in each of 10 Top Yielding Stocks in 8 Sectors & the Dow

The Dogfight for Dividend Dominance Rages

Projected dividend yield amounts from eight sectors over the past five months showed fundamental variations in stock performance. These eight representative market indices displayed their relative strengths in top end dividend yield. Yields in January ranked the sectors in the following order:

The services sector blasted to top yield status in January at $1950.51 annual yield projected from $1000 invested in each of its top ten stocks, the services sector vector crossed paths with technology in December and passed through financial in January. At a lower level, the industrial goods vector dropped below the up ticks of utilities and consumer goods as it dropped from the $800 level.

As dividend reality struck several high flying sectors, the chart was totally reordered in February. Services plunged below financial and basic materials in total dividends projected from $1k invested in each of the top ten stocks. Technology joined the race to the bottom as their dividends sank below basic materials still managing to stay just $50 below basic materials. Meanwhile, utilities plunged in dividends to meet consumer goods trending up near the $700 level. Industrial goods dropped to the lowest level (but above the Dow) as their dividends for $10k invested plunged below healthcare by $26 projected annually.

These eight sectors and their component stocks have ongoing stories to tell. This graph and list of companies will be updated again for publication each month.

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

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 are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.