Consumer Defensive Sector Delivers 18 Safe Dividend Dogs In December

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Includes: BGS, CALM, CCLAY, FLO, GNC, IMBBF, IMBBY, MHG, PM, RMCF, RSGUF
by: Fredrik Arnold

Summary

18 of 50 Consumer Defensive Sector stocks promised dividends supported by free cash flow yields greater than dividend yields. IMBBF, by yield, topped those bolstered by cash for dividends.

10 safe December Consumer Defensive Sector yields from BGS, CALM, CCLAY, IMBBY, PM, RMCF, GNC, RSI.TO, MHG, and IMBBF ranged 4.3% to 6.23%. Cash flow yields ranged 4.87% to 10.42%.

In addition to safety margin, Consumer Defensive Sector dogs also reported payout ratios (lower is better), total annual returns, and dividend growth as of 11/25/16 to further clarify their backing.

Next year's targets also revealed ten safe Consumer Defensive Sector stocks claiming 43.36% less gain 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." More specifically, these are, in fact, "underdogs".

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Six Consumer Defensive Industries Showed Companies With Ample Cash Margin For Dividends

Seven of thirteen industries composing the sector contained the 18 firms whose dividends were backed by cash cushions as of November 25: Tobacco (5); Farm Products (1); Confectioners (2); Pharmaceutical Retailers (1); Beverages - Soft (2); Packaged Food (4); and Beverages - Wine & Distilled (3).

Finding 18 Consumer Defensive Firms With Cash Flow Margin to Cover Dividends

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Periodic Safety Check

Another article will discuss the attributes of these 50 Consumer Defensive stocks from which these eighteen were sorted. You can see in the list below that the "ConDef" dogs report sufficient annual cash flow yield to cover their anticipated annual dividend yield. The margin of excess is shown in the boldfaced "Safety Margin" column.

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Financial guarantees, however, are easily overruled by a cranky boards of directors or company policies canceling or varying the payout of dividends to shareholders. For example, Imperial Brands (OTCQX:IMBBF, OTCQX:IMBBY) on the list above converted to variable quarterly dividends from variable semi-annual dividends as of May 2015. Another horrid example, Cal-Maine Foods (NASDAQ:CALM), per company policy, only makes quarterly dividend payments when its profits exceed a certain level. The firm has not paid dividends for the last two quarters and has declared it will not in the coming period. In another case, Flowers Foods (NYSE:FLO) cancelled all dividends in 2001, and issued only one dividend in 2002 after a 3:2 split. However, it initiated payment of a string of regularly increasing quarterly dividends since 2003, with stock splits along the way.

Three additional columns of financial data listed after the Safety Margin figures above 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 Revealed No Bargains In "Safe" Dividend "ConDef" Sector Stocks

Ten "safest" Consumer Defensive firms with the biggest yields on November 25 per YCharts data ranked themselves by yield as follows:

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Actionable Conclusions: (1) Analysts Expect 5 Lowest-Priced of 10 "Safe" Dividend High Yield Consumer Defensive Sector Dogs to Deliver 2.77% Vs. (2) 4.89% Net Gains from All 10 by December 2017

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$5000 invested as $1k in each of the five lowest-priced stocks in the "safe" 10 Consumer Defensive Sector kennel by yield were determined by analyst 1-year targets to deliver 43.36% LESS net gain than $5,000 invested as $.5k in all 10. The very highest-priced safe dividend Consumer Defensive dog, Philip Morris International (NYSE:PM), showed the best net gain of 18.57%, per analyst targets.

The five lowest-priced "safe" Consumer Defensive dogs as of November 25 were: Rogers Sugar (OTC:RSGUF, RSI.TO), Coca-Cola Amatil (OTCPK:CCLAY), Rocky Mountain Chocolate (NASDAQ:RMCF), GNC Holdings (NYSE:GNC), and Marine Harvest (NYSE:MHG), with prices ranging from $6.48 to $17.93.

Five higher-priced "safe" Dividend Consumer Defensive dogs as of November 25 were: Cal-Maine Foods, Imperial Brands, B&G Foods (NYSE:BGS), and Philip Morris International, with prices ranging from $40.35 to $89.29.

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. It's also the work analysts got paid big bucks to do.

Caution is advised, however, as analysts are historically 20-80% accurate on the direction of change and about 0-20% 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, and this instablog to aid your safe investing.

The stocks listed above were suggested only as possible starting points for your safest Consumer Defensive Dividend Dog stock research process. These were not recommendations.

Three of these Consumer Defensive sector dividend pups qualified 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.

Root for the Underdog.

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; Yahoo Finance; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo from: handmadecharotte.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.