Energy Sector Dividend Dogs Dig Up Safe Bargains In November

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Includes: FRHLF, HP, LUKOY, REPYY, SNP, VET, VLO
by: Fredrik Arnold

Summary

Just 13 of 50 November Energy Sector dog dividends are safe because their reported free cash flow yield exceeds dividend yield. Yes, those 13 have reported sufficient cash margin too.

Top 10 safe dividend yields from VLO; FRU.TO; FRHLF; HP; VET; VET.TO; LUKOY; REPYY; ESI.TO; SNP ranged 3.79-6.93%. Their cash-flow yields were 6.26-26.11%.

Besides safety margin, Energy Sector dogs were also screened for low payout ratios, total annual returns, and dividend growth as of the November 18 market close.

Broker targets revealed that the lowest priced five of 10 top yield safe Energy Sector dogs promised 21.18% more gain from $5k invested than did all 10.

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 Industries In The Energy Sector Show Up As "Safe"?

All six energy sector industries listed cash margins greater than their announced annual dividends: drilling; exploration & production (E&P); equipment & services (E&S); integrated; midstream; refining & marketing (R&M). However, only four industries put their dogs into the top 10: integrated (3); e&p (4); drilling (2); r&m (1).

13 Energy Firms Report Free Cash Flow Sufficient to Cover Dividends

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Periodic Safety Inspection

A previous article discussed the attributes of these 50 energy stocks from which these 13 were sorted. You see below the list that passed the dividend "stress" test. These 13 energy 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.

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, China Petroleum (NYSE:SNP) on the list has paid a variable semi-annual dividend that has ranged from $0.18615 in September 2002, to $2.49 in June 2013 before a 13:10 stock split. Also, Repsol (OTCQX:REPYY) pays a similar variable semi-annual dividend as a strategy to manage its cash requirements.

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Three additional columns of industrial data, listed after the Safety Margin figures, reveal payout ratios, total annual returns, and dividend growth levels for each stock. This data can be very useful for going beyond yield to pick reliable payout stocks.

Dog Metrics Found Five Bargains In Energy "Safe" Stocks

Ten "Safest" top energy dividend equities that showed the biggest yields November 18 per YCharts data ranked themselves by yield as follows:

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Actionable Conclusions: (1) Analysts Expect Five Lowest Priced of "Safe" 10 High Yield Energy Dogs To Deliver 7.23% VS. (2) 5.97% Net Gains from All 10 by November, 2017

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$5,000 invested as $1k in each of the five lowest priced stocks in the "safe" 10 Energy kennel by yield were determined by analyst one-year targets to deliver 21.18% more net gain than $5,000 invested as $.5k in all 10. The fifth lowest priced safe energy dog, Vermilion Energy (NYSE:VET) showed the best net gain of 25.22% per analyst targets.

Lowest priced five "safe" Energy Sector dogs as of November 18 were: Ensign Energy Services (OTCPK:ESVIF) (ESI.TO); Freehold Royalties (OTCPK:FRHLF) (FRU.TO); Repsol; Vermilion Energy, with prices ranging from $8.20 to $39.70.

Higher priced five "safe" energy dogs for November 18 were: Lukoil (OTCPK:LUKOY); Vermilion Energy (VET.TO); Valero Energy (NYSE:VLO); Helmerich & Payne (NYSE:HP); China Petroleum, whose prices ranged from $47.61 to $68.35.

This distinction between five low-priced dividend dogs and the general field of 10 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. It's 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.

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 and this instablog to aid your safe investing. - Fredrik Arnold

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

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

It's about time to make investing fun again. For a free copy of the monthly top dogs, the quarterly reports, and the dog of the year winner, 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: orvis.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.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.