Trying to make sense of this market? Join the club – it’s been a topsy-turvy ride so far in 2016, with the market getting off to its worst start in history, thanks to the December Fed rate hike, and plunging oil prices.
Then, in early February, oil prices bottomed, and the market started coming back. This chart uses the USO (NYSE:USO) oil ETF as a proxy for oil. It’s a pretty good directional correlation between oil and the S&P 500:
Investors have flocked to the Utilities sector in 2016 for its defensive attributes, and also to the Basic Materials sector, in order to profit on extremely beaten down Energy and Basic Materials stocks. Even with their out-sized gains in 2016, these 2 sectors still have the highest dividend yields in the market:
So, after all of that support, how do their valuations stack up vs. other sectors? Basic Materials still has the lowest average Price/Book and Price/Sales, with Utilities near the low end for Price/Book and in the middle for Price/Sales. It’s hard to use P/E across the board to compare sectors, though, since so many Energy and Basic Materials stocks use an alternate metric, Price to Distributable Cash Flow to value their earnings.
Healthcare, a former front runner over the past few years, has gotten very little market support, thanks to political and headline pressures. Its P/E is also skewed higher by richly-valued biotech stocks.
Here are the top 10 performing high dividend stocks so far in 2016. We screened for positive earnings, a 5%-plus dividend yield, and positive ROE and ROA. Not surprisingly, there are a few familiar names in this list – Dynagas LNG Partners LP (NYSE:DLNG) and KNOT Offshore Partners LP (NYSE:KNOP), some shipping stocks which we wrote about last month, and DCP Midstream Partners LP (NYSE:DPM), which we covered in a Seeking Alpha article.
Here’s the glaring paradox about these stocks – even though they’re up by big percentages in 2016, they’re mostly still down over the past year – DLNG, for example, is up over 52% in 2016, but it’s down over -22% over the past year. It shows you how extremely beaten down these stocks were, that this could be possible.
Valuations: Brookfield Infrastructure Partners LP (NYSE:BIP) has the cheapest Price/Book, but its P/E is high. However, on a Price to Funds From Operations basis, (P/FFO), it looks cheaper, at 11.85x.
Top Performing Basic Materials Dividend Stocks: 4 out of 5 are Oil and Gas Pipeline stocks – investors definitely got the news that fee-based pipeline businesses weren’t going under anytime soon, even with cheap crude oil sloshing through the system.
Valuations: The 4 pipeline stocks have something else in common – take a look at how much lower their forward P/E’s are – clearly, analysts see better things ahead for them.
Nustar Energy LP (NYSE:NS) and Sprague Resources LP (NYSE:SRLP) also have options available.
Cone Midstream Partners LP (NYSE:CNNX) is the winner in this group for margin, while Sprague Resources LP (NYSE:SRLP) has the strongest ROE:
Disclosure: Author owned shares of DLNG, KNOP, and BIP, at the time of this writing.
Disclaimer: This article is intended for informational purposes only, and is not intended as investment advice. Please practice due diligence before investing any of the stocks listed in this article.