Basic Materials Dog Safety Check Tags 23 Of 50 In October

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Includes: AHGP, ARLP, CINR, EVA, FELP, SXCP, TNH, TX
by: Fredrik Arnold

Summary

23 of 50 Basic Materials stocks pay dividends deemed safe because their reported free cash flow yield exceeds dividend yield. So, those 23 show sufficient margin to pay anticipated dividends.

Top 10 safe October Basic Materials Sector yields from CHE-UN.TO; CINR; LIF.TO; RUS.TO; ARLP; EVA; AHGP; TNH; SXCP; FELP ranged 6.69% to 15.21%. Cash flow yields ranged 8.07% to 39.23%.

Besides their safety margin, Basic Materials sector dogs also reported payout ratios (lower is better), total annual returns, and dividend growth, as of October 19.

Broker targets revealed ten top yield safe Basic Materials Sector stocks with 2.32% more gains from $5k invested in the lowest priced five than from $5K invested in all ten.

The Dividend Dogs Rule

The "dog" moniker was earned by stocks 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."

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What Basic Materials Industries Appear "Safe"?

Basic Materials sector industries listing cash margins greater than their announced annual dividends include: coal; agricultural inputs; lumber & wood production; steel; industrial metals; specialty chemicals; paper & paper products; chemicals.

Top ten Basic Materials sector dogs showing the biggest dividend yields by this screen as of October 19 represented six industries: (1) coal had four stocks; (2) agricultural inputs had one; (3) lumber and wood production had one; (4) steel had two equities; (5) industrial metals had one; (6) specialty chemicals was represented by one stock.

23 Basic Materials Firms Showed Cash Margins to Cover Dividends

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Periodic Safety Check

A previous article discussed the attributes of these 50 Basic Materials stocks from which those twenty-three tinted light green were sorted. You see below the list that passed the dividend "stress" test. These 23 Basic Materials dogs report sufficient annual cash flow yield to cover their anticipated annual dividend yield. The margin of excess is shown in the bold face "Safety Margin" column.

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Financial guarantees however are easily over-ruled by a cranky board of directors or company policy canceling or varying the payout of dividends to shareholders. For example, Alliance Resource (NASDAQ:ARLP) on the list below has paid a variable quarterly dividend that has ranged from $.675 to $.438 over the past year. Also Ternium (NYSE:TX) skipped its annual dividend in 2009, to suit it's cash flow.

Three additional columns of industrial data listed after the Safety Margin figures reveal payout ratios (lower is better), total annual returns, and dividend growth levels for each stock. This data is provided to reach beyond yield to select reliable payout stocks.

Dog Metrics Recovered Bargains In Basic Material "Safe" Stocks

Ten "Safest" top Basic Materials firms that showed the biggest yields October 19 per YCharts data ranked themselves by yield as follows:

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Actionable Conclusions: (1) Analysts Predict 5 Lowest Priced of "Safe" Ten High Yield Basic Material Sector Dogs To Deliver 5.79% VS. (2) 5.66% Net Gains from All Ten by October, 2017

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$5000 invested as $1k in each of the five lowest priced stocks in the "safe" ten Basic Materials kennel by yield were determined by analyst 1 year targets to deliver 2.32% more net gain than $5,000 invested as $.5k in all ten. The very lowest priced safe Basic Materials dog, Foresight Energy (NYSE:FELP) showed the best net gain of 13.21% per analyst targets.

Lowest priced five "safe" Basic Materials dogs as of October 19 were: Foresight Energy ; Labrador Iron Ore Royalty (LIF.TO); SunCoke Energy Partners (NYSE:SXCP); Chemtrade Logistics (CHE-UN.TO); Russel Metals (RUS.TO), with prices ranging from $4.47 to $20.80.

Higher priced five Safe Basic Materials dogs as of October 19 were: Alliance Resource Partners; Enviva Partners (NYSE:EVA); Alliance Holdings (NASDAQ:AHGP); Ciner Resources (NYSE:CINR); Terra Nitrogen Co (NYSE:TNH), whose prices ranged from $23.75 to $106.91.

This distinction between five low priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed for beating the Dow. The added scale of projected gains based on analyst targets contributed 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. Its also the work analysts got paid big bucks to do.

Caution is advised, however, as analysts are historically 20% to 80% accurate on the direction of change and about 0% to 20% accurate on the degree of the change.

The net gain estimates mentioned 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.

See my instablog for specific instructions about how to best apply the dividend dog data featured in this article.--Fredrik Arnold

Stocks listed above were suggested only as possible starting points for your safest Industrial dog dividend stock research process. These were not recommendations.

Five of these basic materials sector dividend pups qualify as valuable catches! Find them as five of the now 52 Dogs of the Week found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information.

Top performing DOTW dogs for the first through third quarters have been named. A fourth quarterly winner will be announced November 16.

Root for the Underdog and celebrate the top dividend net gainers for the past year at the free for all first annual dividend dog of the year award webinar on shindig. November 16 at 11AM to Noon EST. Go here to reserve your seat: http://events.shindig.com/event/dogofyearaward.

For a free copy of the 12 monthly top dogs list, including updates on the Q1, Q2, and the Q3 picks, send your e-mail address, ticker symbol for your favorite dividend stock, and name of your favorite team of any sport or activity to: fredrika120@gmail.com. Remember: E-mail, ticker, team!

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.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from ycharts. com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo from: frenchpark.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.