35% Of Contender And Challenger Dog Dividends Deemed Safe In October

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Includes: ABR, APU, BLX, CHSP, CLDT, CLMS, CLNS, CXW, DCP, FKYS, FUN, GAIN, GMLP, HEP, IMASF, LHO, MDP, PBCT, PIR, STX, TCP, UBA, VLO, VZ, WHG
by: Fredrik Arnold

Summary

Despite their five to twenty-four year records of dividend increases, not all dividend Contender & Challenger dogs show safe margins of cash flow to sustain their payouts.

35 of 100 Dividend Contender & Challenger dogs pay dividends deemed safe because their free cash flow yield exceeds dividend yield. These 35 have sufficient margin to cover anticipated dividends.

Safe Contenders, PBCT; WHG; FKYS; VZ; UBA; IMASF; TCP; HEP; APU; DPM yields ranged 4.32%-8.78%. Challengers, CHSP; CLDT; LHO; STX; ABR; GAIN; STWD; CLNY; CLMS;GMLP yields were 6.42%-11.73%.

Besides safety margin, Contender & Challenger dogs were also screened for payout ratios, total annual returns, and dividend growth as of October 12 market close, to further gauge dividend reliability.

Brokers credited 5 top yield safe Contender dogs with 10.34% LESS and Challenger dogs with 13.65% more gains from $5k invested in the low-price five than from $5K in 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."

Contender & Challenger "Safe" Dogs Are From All Sectors

The 35 safe Contender & Challenger Dogs hailed from all 11 business sectors. These were: energy (4); utilities (1); communication services (2); real estate (8); financial services (9); consumer defensive (1); consumer cyclical (5); technology (2); healthcare (1); industrial (1); basic materials (1).

35 of 100 Dividend Contender & Challenger Dogs Have Cash Margins to Cover Dividends

Periodic Safety Check

Two previous articles discussed the attributes of these 100 Contender & Challenger dividend dogs from which these "safest" were sorted. You see above the green tinted list that passed the dividend "stress" test. These 35 Dividend Contender & Challenger 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. This article asserts that wherewithal in the form of cash flow yield is a strong reason to sustain a track record of annual dividend hikes.

The safe Challengers carry pedigrees of 5 to 9 annual dividend increases. The safe Contenders have demonstrated 10 to 24 such increases.

Actionable Conclusions: (1) Ten Top Safe Contender & Challenger Dogs Showed 16.53% Average Upside, While (2) Seven Dropped Down -0.14% To -40.37% Estimated For October 2017

To quantify top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metrics, analyst mean price target estimates were another tool used to dig out bargains.

Actionable Conclusions: Wall St. Analysts Forecast (3) 4.03% Upside & (4) 11.33% Net Gain Averages From 35 Safe Dividend Contenders By October, 2017

Thirty-five safe dogs from David Fish's Dividend Contenders & Challengers lists were graphed below as of October 12, 2016 and compared to analyst mean price target estimates for the same date in 2017.

A hypothetical $1000 investment in each equity was divided by the current share price to find the number of shares purchased. The shares number was then multiplied by predicted annual dividend amounts to find the return.

Historic prices and actual dividends paid from $35,000 invested as $1k in each of the highest yielding stocks and the aggregate single share prices of those thirty stocks divided by 3 created data points for 2016. Projections based on estimated increases in dividend amounts from $1000 invested in the thirty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 3.5 created the 2017 data points in green for price and blue for dividend.

Analyst data reported by Yahoo finance projected a 3.85% lower dividend from $35K invested as $1k in each stock in this group while aggregate single share price was projected to increase 4.3% in the coming year.

The number of analysts contributing to the mean target price estimate for each stock was noted in the next to the last column on the charts. Three to nine analysts had a better history of accurate estimates.

A beta (risk) ranking for each analyst rated stock was provided in the far right column on the above chart. A beta of 1 meant the stock's price would move with the market. Less than 1 showed lower than market movement. Higher than 1 showed greater than market movement. A negative beta number indicated the degree of a stock price movement opposite of market direction.

Actionable Conclusion (5): Analysts Predict Top Ten Safe Dividend Contender & Challenger Dogs To Net 6.87% to 42.76% By October, 2017

Seven of ten top dividend yielding Contender dogs were among the ten gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy as graded by Wall St. wizards was 70% accurate.

Ten probable profit generating trades were revealed by Thomson/First Call in Yahoo Finance into 2017:

Corrections Corp (NYSE:CXW) (a Challenger) was projected to net $557.99 based on dividends plus median target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 56% less than the market as a whole.

Colony Capital (CLNY) (a Challenger) was projected to net $405.39 based on dividends plus the annual price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 23% less than the market as a whole.

Cedar Fair (NYSE:FUN) (a Challenger) was projected to net $222.81 based on dividends plus the median rates of seven analysts less broker fees. The Beta number showed this estimate subject to volatility 68% less than the market as a whole.

Valero Energy (NYSE:VLO) (a Challenger) was projected to net $195.84 based on dividends plus the median target price estimate from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 15% more than the market as a whole.

Arbor Realty Trust (NYSE:ABR) (a Challenger) was projected to net $157.11 based on a median target price estimate from three analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 71% less than the market as a whole.

Urstadt Biddle Properties (NYSE:UBA) (a Contender) was projected to net $143.03 based on a median target price estimate from three analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 67% greater than the market as a whole.

Calamos Asset Management (NASDAQ:CLMS) (a Challenger) was projected to net $140.31 based on dividends plus median target price estimate from two analysts less broker fees. The Beta showed this estimate subject to volatility 5% less than the market as a whole.

Holly Energy Partners (NYSE:HEP) (a Contender) was projected to net $131.45 based on dividends plus the lowest of annual price estimates from six analysts less broker fees. The Beta number showed this estimate subject to volatility 7% less than the market as a whole.

Meredith Corporation (NYSE:MDP) (a Contender) was projected to net $121.85 based on a median target price estimate from four analysts combined with dividends less broker fees. The Beta number showed this estimate subject to volatility 19% more than the market as a whole.

Verizon Communications (NYSE:VZ) (a Contender) was projected to net $99.48 based on dividends plus the median of annual price estimates from six analysts less broker fees. The Beta number showed this estimate subject to volatility 92% less than the market as a whole.

The average net gain in dividend and price was 21.75% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 31% less than the market as a whole.

Actionable Conclusion (6): (Bear Alert) Analysts Asserted One Safe Contender & Two Safe Challenger Dogs Showed Losses Of 3.84% To 36.97% By 2017

Probable losing trades revealed by Thomson/First Call in Yahoo Finance in 2017 were:

Pier 1 Imports (NYSE:PIR) was projected to lose $38.35 based on dividend and a median target price estimate from eleven analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 91% more than the market as a whole.

People's United Financial Inc. (NASDAQ:PBCT) was projected to lose $87.34 based on dividends plus eight analysts less broker fees. The Beta number showed this estimate subject to volatility 13% less than the market as a whole.

Banco Latinoamericano (NYSE:BLX) was projected to lose $369.70 based on dividends plus mean target price estimate from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 30% less than the market as a whole

The average projected net loss in dividend and price was 16.5% on $3k invested as $1k in each of these three dogs. This loss estimate was subject to average volatility 49% more than the market as a whole.

Actionable Conclusion (7): "If Everyone Told The Truth, The Market Would Not Move:" CXW vs. BLX Price History

Year to date price performance of Banco Latinoamericano the Contender portfolio "loser" red-lined by analysts, showed modest 8.56% upside in contrast to the below zero -46.51% negative price history demonstrated by analyst tagged upside leader, Corrections Corporation of America .

Momentum was contrary to these two analyst projections.

Dog Metrics Looked For Small Dog Bargains & Revealed "Safe" Contender Stocks

Ten "Safest" top Contender issues that showed the biggest yields October 12 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: (1) Analysts Predicted Five Lowest Priced of "Safe" Ten High Yield Contender Dogs To Deliver 5.03% VS. (2) 5.61% Net Gains from All Ten by October, 2017

$5000 invested as $1k in each of the five lowest priced stocks in the 10 highest yield safe Contender dog kennel by yield were determined by analyst one-year targets to deliver 10.34% LESS net gain than $5,000 invested as $.5k in all ten. The third lowest priced Contender dog, Urstadt Biddle Properties showed the best net gain of 14.3% per analyst targets.

Lowest priced five "safe" Contender dogs as of October 12 were: Inmarsat (OTCPK:IMASF), People's United Financial Inc, Urstadt Biddle Properties , First Keystone (OTCPK:FKYS), Holly Energy Partners, with prices ranging from $8.77 to $34.60.

Higher priced five Safe Contender dogs as of October 12 were: DCP Midstream Partners (DPM); AmeriGas Partners (NYSE:APU), Verizon Communications, Westwood Holdings Group (NYSE:WHG), and TC Pipelines (NYSE:TCP), whose prices ranged from $35.55 to $57.47.

Dog Metrics Detected "Safe" Challenger Stocks

Ten "Safest" top Challenger issues that showed the biggest yields October 12 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: (1) Analysts Estimated Five Lowest Priced of "Safe" Ten Top Yield Challenger Dogs To Deliver 20.01% VS. (2) 17.60% Net Gains from All Ten by October, 2017

$5000 invested as $1k in each of the five lowest priced stocks in the 10 highest yield safe Challenger dog kennel by yield were determined by analyst one-year targets to deliver 13.65% more net gain than $5,000 invested as $.5k in all ten. The fourth lowest priced Challenger dog, Corrections Corporation of America showed the best estimated net gain of 55.8% per analyst targets.

Lowest priced five "safe" Challenger dogs as of October 12 were: Calamos Asset Management , Arbor Realty Trust , Gladstone Investment (NASDAQ:GAIN), Corrections Corporation of America , Chatham Lodging (NYSE:CLDT), with prices ranging from $6.55 to $17.90.

Higher priced five Safe Challenger dogs as of October 12 were: Colony Capital , Golar LNG Partners (NASDAQ:GMLP), Chesapeake Lodging Trust (NYSE:CHSP), LaSalle Hotel Properties (NYSE:LHO), and Seagate Technology (NASDAQ:STX), whose prices ranged from $17.96 to $35.23.

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. Its also the work analysts got paid big bucks to do.

A 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 Challenger dividend dog stock research process. These were not recommendations.

Five of these Contender & Challenger pups qualify as valuable catches! They are listed with the now 52 Dogs Of The Week (DOTW) 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. And monthly winners are known. A fourth quarterly winner will be announced November 16.

Root for the Underdog 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 monthly top dog 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. Two Pup photo from: wondrouspics.com.

Disclosure: I am/we are long VZ.

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.

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