Sector Study: Consumer Cyclical Vs. Consumer Defensive Dividend Dogs, Which To Buy?

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Includes: ADM, BG, BGS, BIG, CATO, FCAU, FUN, GCI, GME, IGT, IMBBF, IMBBY, M, MO, NCMI, NEWM, NHTC, NSANY, NUS, NWL, PETS, PM, RISK, SIG, SPTN, TLRD, TSQ, UVV
by: Fredrik Arnold
Summary

Consumer sectors are two. Cyclical goods include impulse and convenience items, cars, clothes, dining, travel, and entertainment. Defensive covers habitual and staple stuff, booze, beer, groceries, and bulk commodities.

Top-yield ten cyclicals, SIG; FUN; M; NSANY; GCI; CATO; NCMI; TLRD; NEWM; GME averaged 10.41%. Top yield defensives, UVV; PM; SPTN; PETS; NHTC; NWL; MO; IMBBY; IMBBF; BGS averaged 6.17%.

These are CONCY Vs. CONDEF Top Gainer Dogs 5/24/2019: CONCY top five, GCI, IGT, TLRD, FCAU, and TSQ averaged 77.8%. Defensive top five, ADM; NWL; BG; BIG; NUS averaged 35.96%.

Analyst one-year targets predicted that ten highest-yield ten cyclical stocks could produce 45.51% more gain from $5k invested in the lowest-priced five defensive prediction showed 30.16% more net-gain for the little dog five than from $5k invested in all ten.

Actionable Conclusions (1-5): Brokers Predicted 29.75% To 49.42% Net Gains From Top Five Consumer Cyclical Sector Dogs By June 2020

Two of five top dividend-yielding CONCY dogs were verified as being among the top ten gainers for the coming year based on analyst 1-year target prices. (It is tinted gray in the chart below). So, our May 24 yield-based forecast for CONCY dogs, as graded by Wall St. wizards, was 40% accurate.

Source: YCharts.com

Projections are based on estimated dividend returns from $1,000 invested in the five highest yielding stocks and their aggregate one-year analyst median target prices, as reported by YCharts, created the 2019-20 data points. Note: one-year target prices by lone analysts were not applied. Top five probable profit-generating trades projected to May 24, 2020, were:

Townsquare Media Inc. (TSQ) netted $1.008.14 based on the median of target price estimates from three analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 108% more than the market as a whole.

Fiat Chrysler Automobiles (FCAU) was projected to net $859.93, based on the median of target estimates from four analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk 90% more than the market as a whole.

Tailored Brands Inc. (TLRD) was projected to net $770.97, based on dividends, plus the median of target price estimates from two analysts, less broker fees. The Beta number showed this estimate subject to risk 70% more than the market as a whole.

International Game Technology (IGT) was projected to net $677.07, based on dividends, plus the median of target price estimates from ten analysts, less broker fees. The Beta number showed this estimate subject to volatility 27% more than the market as a whole.

Gannett Co Inc. (GCI) was forecast to net $574.13, based on target price estimates from four analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 22% more than the market as a whole.

The average net gain in dividend and price was estimated at 77.4% on $5k invested as $1k in each of these five CONCY stocks. This gain estimate was subject to average volatility 63% above the market as a whole.

Actionable Conclusions (6-10): Analysts Estimated 29.75% To 49.42% Net Gains For Top Five Consumer Defensive Sector Dogs To June 2020

One of the five top CONDEF Sector dividend stocks by yield was among the top ten gainers for the coming year based on analyst 1-year target prices. Thus, this yield-based forecast for CONDEF dogs was graded by Wall St. Wizards as 20% accurate.

Source: YCharts.com

Projections were based on estimated dividends from $1,000 invested in each of the highest yielding stocks and their aggregate one-year analyst median target prices, as reported by YCharts. Note: one-year target prices by lone analysts were not applied. Five probable profit-generating energy sector trades projected to May 24, 2020, were:

Nu Skin Enterprises (NUS) netted $494.19 based on the median of target price estimates from seven analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 33% less than the market as a whole.

Big Lots Inc. (BIG) was projected to net $382.10, based on the median of target estimates from eleven analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 27% above the market as a whole.

Bunge (BG) was projected to net $347.11, based on dividends, plus the median of target price estimates from nine analysts, less broker fees. The Beta number showed this estimate subject to volatility 9% less than the market as a whole.

Newell Brands Inc. (NWL) was projected to net $326.85, based on dividends, plus the median of target price estimates from twelve analysts, less broker fees. The Beta number showed this estimate subject to volatility 2% more than the market as a whole.

Archer-Daniels-Midland Co. (ADM) was forecast to net $297.51, based on target price estimates from fourteen analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 4% less than the market as a whole.

The average net gain in dividend and price was estimated at 36.96% on $5k invested as $1k in each of these five stocks. These gain estimates were subject to average volatility 5% less than the market as a whole.

Source: pets.webmd.com

The Dividend Dogs Rule

Stocks earned the "dog" moniker by exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as "dogs." More precisely, these are, in fact, best called, "underdogs".

The June 2019 Consumer Cyclical and Defensive Sector Top Dogs By Yield

Source: YCharts.com

Actionable Conclusion (11-20) 10 Top Consumer Cyclical Dividend Stocks By Yield Range 6.90% To 19.44% Per YCharts

Top ten consumer cyclical dividend dogs as of 5/24/19 by YCharts represented eight of twenty-eight total sector industries. One was from specialty retail, two represented publishing, two were from apparel stores, one a marketing services firm, and one an auto manufacturer, one represented department stores, one came from the leisure industry and one from luxury goods.

First place was claimed by the lone specialty retail industry representative, GameStop Corp. (GME) [1].

Two publishing industry representatives placed second, and sixth: New Media Investment Group Inc. (NEWM) [2], and Gannett Co Inc. (GCI) [6]; Universal Corp. (UVV) [10].

Two apparel stores representatives placed third and fifth, Tailored Brands Inc. [3], and The Cato Corp. (CATO) [6].

Single representatives completed the representation, marketing services placed fourth, National CineMedia Inc. (NCMI) [4]; auto manufacturers placed seventh represented by Nissan Motor Co. Ltd. (OTCPK:NSANY) [7]; department stores, placed eighth represented by Macy's (M) [8]; leisure was in ninth place as represented by Cedar Fair LP (FUN) [9]; finally, luxury goods made the top ten in tenth place represented by Signet Jewelers Ltd. (SIG) [10], to complete the CONCY top ten.

Actionable Conclusions (21-30): 10 Top Consumer Defensive Sector Equities Range 5.28% To 8.66% Per YCharts

Top ten consumer defensive dividend dogs as of 5/24/19 by YCharts represented five of thirteen total sector industries. One was from packaged goods, five represented tobacco, two were from household and personal products, one was a pharmaceutical retailer, and one was a food distributor.

First place was claimed by the lone packaged foods industry representative, B&G Foods Inc. (BGS) [1].

Five tobacco industry representatives placed second, third, fourth, ninth, and tenth: Imperial Brands (OTCQX:IMBBF) [2] ; IMBBY [3]; Altria Group Inc. (MO) [4]; Philip Morris International Inc. (PM) [9]; Universal Corp. (UVV) [10].

Two household and personal products representatives placed fifth and sixth, Newell Brands Inc. (NWL) [5], and Natural Health Trends Corp. (NHTC) [6].

Finally, single representatives from pharmaceutical retail and food distribution industries placed eighth and ninth, PetMed Express Inc. (PETS) [8], and SpartanNash Co. (SPTN) [9] and completed the top ten consumer defensive sector top ten.

Dividend Vs. Price Results

Graphs below show the relative strengths of the top ten Consumer Cyclical and Consumer Defensive sector dogs by yield as of market close 5/24/2019. The two sets of charts show the variation of dividends as calculated by YCharts.com

Source: YCharts.com

Top ten consumer cyclical and eight of ten defensive dogs show none overbought. (The aggregate single share prices of ten cyclical and eight defensive sector representatives exceeded projected annual dividend from $10k invested as $1k in each). A dividend dogcatcher priority is to source stocks whose dividends from $1K invested exceed their single share price. In the consumer cyclical sector, all but one of the top thirty stocks by yield meet that goal (Las Vegas Sands (NYSE:LVS) is overbought).

Furthermore, half of the thirty top consumer defensive sector stocks by yield also meet the dogcatcher standard for dividend economics. The overbought fifteen are: PM, UVV, Coca-Cola European Partners (NYSE:CCEP), K (Kellogg), BG, Campbell Soup (NYSE:CPB), General Mills (NYSE:GIS), ADM, Walgreens Boots Alliance (NASDAQ:WBA), Coca-Cola (NYSE:KO), Ingredion (NYSE:INGR), Kimberly-Clark (NYSE:KMB), Target (NYSE:TGT), Unilever (NYSE:UN), and NUS being overbought. All but those fifteen consumer defensive top thirty are well-priced below the amount of dividend secured from $1,000.00 invested.

Actionable Conclusion (31): Consumer Cyclical Sector Top Ten Stocks Show More Risk With More Dividend Output Than The Consumer Defensive Sector Top Ten

The aggregate single share price for the top ten consumer cyclical dogs was 13% per YCharts but 35% for the consumer defensive top ten while the dividend derived from $10k invested as $1k in each of the ten was 87% from CONCY and 65% from CONDEF.

Two primary distinctive differences between consumer cyclical and defensive sectors were in risk, as measured by beta, and price per dollar of dividend. Consumer cyclical top thirty by yield showed an average beta (RISK) factor of 1.10, while the top thirty consumer defensive by yield came in at 0.71, for .39 less risk.

As for price per dollar of dividend, the higher risk consumer cyclical dogs top ten averaged $11.35, while the lower risk consumer defensive dogs top ten averaged $16.84, a $5.49 spread. Normally, higher risk comes at a lower price.

Analysts Forecast A 45.51% Advantage For 5 Highest Yield Lowest Price Consumer Cyclical Dogs To June 2020

Ten top consumer cyclical sector dogs were culled by yield for this report. Yield (dividend/price) results as verified by YCharts did the ranking.

Source: YCharts.com

As noted above, top ten CONCY dogs selected 5/24/19 revealing the highest dividend yields represented eight of twenty-eight industries in the sector.

Actionable Conclusions: Analysts Expected 5 Lowest-Priced of the Ten Highest-Yield Consumer Cyclical Dogs (32) To Deliver 45.2% Vs. (33) 31.06% Net Gains by All Ten Come June 2020

Source: YCharts.com

$5,000 invested as $1k in each of the five lowest-priced stocks in the top ten consumer cyclical sector dividend kennel by yield were predicted by analyst 1-year targets to deliver 45.51% more gain than from $5,000 invested in all ten. The very lowest priced consumer cyclical top yield dog, Tailored Brands Inc., was projected to deliver the best net gain of 77.1%.

Source: YCharts.com

The five lowest-priced consumer cyclical sector top-yield dogs for May 24 were: Tailored Brands Inc.; National CineMedia Inc.; Gannett Co Inc.; GameStop Corp.; New Media Investment Group Inc. (NEWM), with prices ranging from $6.30 to $9.00.

Five higher-priced consumer cyclical sector top-yield dogs for May 24 were: Nissan Motor Co. Ltd.; The Cato Corp.; Macy's Inc.; Signet Jewelers Ltd.; Cedar Fair LP (FUN), whose prices ranged from $13.46 to $52.56.

Analysts Forecast A 30.16% Advantage For 5 Highest Yield, Lowest Priced Consumer Defensive Sector Dividend Stocks To June 2020

Ten top CONDEF sector dividend dogs were culled by yield for this update. Yield (dividend/price) results verified by YCharts did the ranking.

Source: YCharts.com

As noted above, top ten consumer defensive sector dividend dogs selected 5/24/19 showing the highest dividend yields represented five of thirteen industries in their sector.

Actionable Conclusions: Analysts Predicted 5 Lowest-Priced Of the Top Ten Highest-Yield Consumer Defensive Sector Dogs (34) Delivering 18.56% Vs. (35) 14.26% Net Gains by All Ten Come June 2020

Source: YCharts.com

$5,000 invested as $1k in each of the five lowest-priced stocks in the top ten dividend consumer defensive sector kennel by yield were predicted by analyst 1-year targets to deliver 30.16% more gain than $5,000 invested as $.5k in all ten. The third lowest priced selection, Newell Brands Inc., was projected to deliver the best net gain of 32.68%.

Source: YCharts.com

The five lowest-priced top-yield CONDEF sector dividend dogs as of May 24 were: Natural Health Trends Corp. (NHTC), SpartanNash Co. (SPTN); Newell Brands Inc. (NWL); PetMed Express Inc. (PETS); B&G Foods Inc. (BGS), with prices ranging from $10.76 to $21.93.

Five higher-priced CONDEF sector dividend dogs as of May 24 were: Imperial Brands PLC (OTCQX:IMBBF) and (OTCQX:IMBBY); Altria Group Inc. (MO); Universal Corp. (UVV); Philip Morris International Inc. (PM), whose prices ranged from $26.25 to $84.64.

The distinction between five low-priced dividend dogs and the general field of ten reflected Michael B. O'Higgins' "basic method" for beating the Dow. The scale of projected gains based on analyst targets added 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. Caution is advised, since analysts are historically only 20% to 80% accurate on the direction of change and just 0% to 20% accurate on the degree of change. (In 2017, the market somewhat followed analyst sentiment. In 2018, analyst estimates were contrarian indicators of market performance.)

The net gain/loss 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 reference points for your Dow dividend dog stock purchase or sale research process. These were not recommendations.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from IndexArb; YCharts; Yahoo Finance; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo: pets.webmd.com

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Additional disclosure: 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.