Industrial Goods Dogs Sag In April

by: Fredrik Arnold

This monthly report series began applying dog dividend methodology to each of eight major market sectors in December. The sectors were, in alphabetical order: basic materials; consumer goods; financial; healthcare; industrial goods; services; technology; utilities.

A ninth sector, conglomerates, according to Yahoo Finance, contained just eight firms, five of which paid dividends. The editorial decision was not to apply dogs of the index metrics to a sector containing fewer than ten dividend paying equities.

Dogs of the Index Metrics Selected Ten Top Industrial Goods Stocks by Yield

Two key metrics determined the yields that ranked these 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.

Historically, dividend dog investors utilized this ranking system to select portfolios of five or ten stocks in any one index, sector, or survey to trade. They awaited the results from their investments in the lowest priced, highest yielding stocks and prayed that the price of every stock they now owned climbed 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), revealed how high yielding stocks whose prices increased (and whose dividend yields therefore decreased) could be sold off once a 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 industrial goods sector companies was sorted by yield as of May 16 using to reveal the top thirty. Market performance of these thirty selections was then reviewed using four months of historic projected annual dividend history from Yahoo Finance along with annual dividend projections adjusted for market realities.

Thereafter, this article assessed the relative strengths of the industrial goods sector top ten dividend dogs as of May 1 opening prices vs. the Dogs of the Dow May 11 stock list. Annual dividends from $1000 invested in the ten highest yielding stocks in the sector and index were compared to the aggregate single share prices of the top ten stocks in each.

Industrial Goods Dividend Dogs

Ten industrial goods sector stocks paying the biggest dividends in April represented seven industries. Top industrial goods sector stock Highway Holdings (NASDAQ:HIHO), was the lone metal fabrication outfit; Skyline (NYSEMKT:SKY), does manufactured housing. Veolia Environement (VE) was one of two waste management firms in the top ten. The other was Waste Management (NYSE:WM).

The ten also included two aerospace & defense products & services firms: TAT Technologies (NASDAQ:TATT), and Lockheed Martin (NYSE:LMT). The remaining four in the top ten represented one industry each: CRH plc (NYSE:CRH), cement; KSW Inc. (NASDAQ:KSW), general contractors; Ampco-Pittsburgh Corporation (NYSE:AP), diversified machinery; ABB Ltd. (NYSE:ABB), industrial electrical equipment.

Up and Down Moves by Industrial Goods Dogs

Going back four months, Veolia Environnement remained tinted yellow as the top industrial goods dog through March. VE's dividend payout sagged this year so the Yahoo Finance annual projection for the coming year dropped 67.3% placing Highway Holdings (HIHO) on top for April.

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

Click to enlarge

Bullish upward price moves among the top ten industrial goods dogs since March 30 included six gainers: CRH plc poured out a 4.76% price move up; Lockheed Martin soared .51%; M.D.C. Holdings (NYSE:MDC) from March flew out of the top ten by yield with a 15.95% increase; KSW Inc. gained in price 3.7% and climbed five notches higher by yield as its projected dividend grew 33.3%; Raytheon (NYSE:RTN) from March also exited the top as it launched its price 3.15%; new dog TAT Technologies showed a 11.63% price surge prior to paying out its first dividend since 2009.

Seven losers showed bearish moves for the same period including five among the April top ten: Top dog Highway Holdings crashed 15.2% in price; Skyline Corporation rained 22%; Veolia Environnement dropped 1.22% in price and its divided estimate was reduced 47%; Gafisa (NYSE:GFA) the Brazilian homebuilder sank 17.57% in price and also cut off its 2012 dividend; Waste Management unloaded 2.6%; Ampco-Pittsburgh Corp stumbled 7.66%; ABB Ltd. made the top ten by yield as it plunged 4.52% in price.

All in all the industrial dog losers outnumbered gainers seven to six since March.

Dividend vs. Price Results Compared to Dow Dogs

Below is a graph of the relative strengths of the top ten industrial goods sector dividend stocks by yield as of market close 5/1/2012 compared to those of the Dow. Using four months of 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 created the data points for each month shown in green for price and blue for dividends.

Conclusion: Industrial Goods Dogs Sag in April

The April industrial goods collection of 10 top dividend yielders showed a 16.28% decrease in aggregate single share prices since March 30. Dividends from $1k invested in each of the top ten also declined, but just 1.57% for the month.

Meanwhile, the Dow index moved back to near convergence as dividends from $1k invested in the top ten came to within $8 of their aggregate total single share prices in March. Since then, however, the Dow aggregate single share price for the top ten has rallied up 17.56% into May.

As of April 30, industrial goods sector top ten dogs showed $30, or 7.44%, more dividends from $1k invested in each of the top ten stocks by yield (with equally bigger risk) at a $261, or 55.2% lower aggregate share price than those of the Dow.

A monthly summary will soon compare results in yield and price for all eight sectors reported in this series: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology, and utilities.

Disclosure: I am long T, VZ, 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.