8 Sectors And Dow April Dividend Dog Report

by: Fredrik Arnold

This end-of-month installment summarizes a series of eight articles that compared relative strengths of stock sectors by (1) yield and (2) dividend vs price gaps using projected annual dividends from $1,000 invested in the ten highest yielding stocks in each sector for April. Results for the Dow index were included as a baseline standard.

This effort was part of an ongoing one to respond to the question: Which dividend stocks were good, better, best, bad, or ugly in April?

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." Thus this article graphically depicted 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.

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 low yielding stocks whose prices increase (and whose dividend yields therefore decrease) could be sold off once each year to sweep gains and reinvest seed money into higher yielding stocks in the same index.

Sector Synopses

Ten dogs for each sector displayed their annual dividends from $1,000 invested in those highest yielding stocks in the sector and index compared to the aggregate single share prices of those top ten stocks in March to produce the summary graphs shown below:

Basic Materials Dividend Dogs

Top ten basic materials stocks paying the biggest dividends in April mostly represented the oil and/or gas industry: Whiting (NYSE:WHX); Ferrellgas (NYSE:FGP); Enerplus (NYSE:ERF); QR Energy (NYSE:QRE); BreitBurn (BBEP);Sandridge Permian Trust (NYSE:PER); Pengrowth Energy (NYSE:PGH). Only three of the top ten basic materials firms do not mention oil or gas in their industry description: Great Northern (NYSE:GNI); Oxford (OXF); Rhino (NYSE:RNO).

Consumer Goods Dividend Dogs

The top ten consumer goods stocks showing the biggest dividend yields in April represented six industries. Top stock, Vector (NYSE:VGR) was from the cigarettes industry. Three of the top ten basic materials firms were in the same cigarettes industry group, Reynolds (NYSE:RAI), and British American Tobacco (NYSEMKT:BTI) are the others. The one equipment firm is Pitney Bowes (NYSE:PBI). Two textiles - apparel clothing firms are, Cherokee (NASDAQ:CHKE), and Crown Crafts (NASDAQ:CRWS). There are also two personal products industry firms: CCA Industries (NYSEMKT:CAW), and United - Guardian (NASDAQ:UG). The balance of the top ten are: auto parts, Douglas Dynamics (NYSE:PLOW); home furnishings and fixtures, Leggett & Platt (NYSE:LEG).

Financial Dividend Dogs

Top ten financial sector dogs paying the biggest dividend yields in April represented five industries. Top financial sector stock Armour (NYSE:ARR) was one of seven REITs in the top ten. Five, American Capital (NASDAQ:AGNC), Armour, Two Harbors (NYSE:TWO), New York Mortgage Trust (NASDAQ:NYMT), 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 two industries were represented by Ellington Financial LLC (NYSE:EFC), and Invesco (NYSE:IVR) doing mortgage investment, and Arlington Asset Investment (NYSE:AI), an investment brokerage.

Healthcare Dividend Dogs

Ten healthcare sector stocks paying the biggest dividends in April represented six industries. Top healthcare sector stock PDL BioPharma (NASDAQ:PDLI) was the only biotechnology firm in the top ten. Five drug manufacturers - major firms appeared as top ten dogs: AstraZeneca Group (NYSE:AZN); GlaxoSmithKline (NYSE:GSK); Eli Lilly (NYSE:LLY); Sanofi (NYSE:SNY); Novartis (NYSE:NVS). Psychemedics (NASDAQ:PMD) appeared as a medical laboratories and research firm. PetMed Express (NASDAQ:PETS), represented drug delivery firms. Advocat (AVCA) represented long-term care facilities. Nordion (NYSE:NDZ) completed the April dog list offering specialized health services.

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 public limited company (NYSE:CRH), cement; KSW Inc. (NASDAQ:KSW), general contractors; Ampco-Pittsburgh Corporation (NYSE:AP), diversified machinery; ABB Ltd. (NYSE:ABB), industrial electrical equipment.

Services Dividend Dogs

The top ten services sector stocks showing the biggest dividend yields in April represented five industries. Top sector stock Diana Containerships (NASDAQ:DCIX) was one of six representing the shipping industry. The other five shippers were: Knightsbridge (VLCCF); Navios Maritime Partners (NYSE:NMM); Capital Product Partners (NASDAQ:CPLP); DHT Holdings (NYSE:DHT); Tsakos Energy Navigation (NYSE:TNP). The remaining four sector representatives were all from separate industries: Charm Communications Inc. (NASDAQ:CHRM), advertising agencies; Educational Development Corporation (NASDAQ:EDUC), wholesale, other; Compass Diversified Holdings (NYSE:CODI), staffing & outsourcing services; RadioShack Corporation (NYSE:RSH), electronic stores.

Technology Dividend Dogs

Top ten technology sector stocks showing the biggest dividend yields in April represented four industries. Top technology sector stock MIND C.T.I., Ltd. (NASDAQ:MNDO) was the only information technology services firm in the top ten. Portugal Telecom SGPS (NYSE:PT) at number two was one of two telecom services - foreign firms. The other foreign telecom was France Telecom (FTE). The remaining two industries and their representative firms were: telecom services - domestic, Windstream Corporation (NASDAQ:WIN), Consolidated (NASDAQ:CNSL), Alaska Communications (NASDAQ:ALSK), Warwick Valley (WWVY), and Century Link (NYSE:CTL); wireless communications, NTELOS (NASDAQ:NTLS), and USA Mobility (USMO).

Utility Dividend Dogs

The top ten utilities sector stocks showing the biggest dividend yields in April represented four industries: gas; electric; diversified; foreign. Four gas firms clustered at or near the top of the list were: Niska Gas Storage (NYSE:NKA); Suburban Propane (NYSE:SPH); Amerigas Partners (NYSE:APU); Inergy, L.P. (NRGY). Three electric Utilities were listed: Atlantic Power Corporation (NYSE:AT); Pepco Holdings, Inc. (NYSE:POM); PPL Corporation (NYSE:PPL). Two diversified utilities made the list: TransAlta Corporation (NYSE:TAC); Otter Tail Corporation (NASDAQ:OTTR). One foreign utility was listed: CPFL Energia (NYSE:CPL).

Dow Industrial Dividend Dogs

Two technology firms throwing the biggest dividend yields on the Dow as of May 11 were: (1) AT&T (NYSE:T); (2) Verizon (NYSE:VZ). The rest of the Dow ten included three healthcare dogs: (3) Merck (NYSE: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 was included: (7) Procter & Gamble (NYSE:PG). One financial equity joined: (9) JPMorgan Chase (NYSE:JPM). Two basic materials firm completed the ten Dow dogs: (8) Chevron (NYSE:CVX); (10) Dupont (DD).

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 four months of comparative gyrations of eight sectors. The Dow index displays five.

Sector Dogs Vie for Dividend Dominance

The following graph shows annual dividends projected from $1,000 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 since January. Projected yields increased in the sectors when average stock prices fell. When prices escalated yields dropped.

Relative yield strengths differentiated the sectors. The Dow shows the lowest yield with a low trajectory swing down of 3.06% for the period. Healthcare dropped down just .740%; industrial goods fell 13.1% since January; basic materials bullishly increased 2.24%; technology crashed 39.47%; financial yields were down 11.52%; services sector also vectored down 44.88% by yield; consumer goods yields were down 3.93% since January as were utilities down 15.07%.

Annual Dividends Forecast from $1,000 Invested in each of 10 Top Yielding Stocks in 8 Sectors and the Dow

Relative Risk of Dogs by Sector for March

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 Schiller's admonishment to "make conservative preparations for possible bad outcomes."

Dogfight for Dividend Dominance Decided

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 $1,950.51 annual yield projected from $1,000 invested in each of it's top ten stocks, the services sector vector crossed paths with technology in December and passed through the financials in January. At a lower level, the industrial goods vector dropped below the upticks 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 financials and basic materials in total dividends projected from $1,000 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 $10,000 invested plunged below healthcare by $26 projected annually.

March found financial sector dividends projected from $1,000 invested in each of the top ten stocks diverging furthest at 1,261.00% from aggregate single share prices for those ten stocks. The services sector pulled out of its dividend plunge but not until it had fallen lower at 931.31% in divergence than technology at 945.63%. Basic materials and utilities sectors framed the average divergence amount of 321.17% for the sectors with healthcare at 117.68% and industrial goods at 113.93% showing up as the more conservative dividend investment options closest to the Dow index baseline which displayed near zero divergence at (1.93%).

Come April, services passed technology and financials to recapture the top ranking by divergence of $1k invested in each of the top ten stocks going 1,157.50% past aggregate single share prices for those ten stocks. Financials remained ahead of technology 983% to 498%. Again basic materials and utilities sectors framed the average divergence amount of 288.19% for the sectors. Healthcare replaced industrial goods as the least diverged next to the Dow in April as the safest sector.

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

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