Safe Dividend Power Dogs: High Earnings+Dividend+Cash=NAP

by: Fredrik Arnold

Summary

Defining safe dividend power dogs: (1) fetching higher earnings yield; (2) ranked by dividend yield; (3) free cash flow yield beyond dividend yield as of December 19.

Top ten "Safe Dividend Power Dogs" by yield, DLNG, MITT, NRZ, CIM, HNP, EARN, SXCP, CYS, ORC, found NAP leading.

Besides their safety margin, payout ratios (lower is better), total annual returns, and dividend growth, were also reported for sixteen "Safe Dividend Power Dogs" in December.

Top ten "Dividend Power Dogs" by yield showed $5k invested in the lowest priced five projected 24.67% more net gain 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 precisely, these are, in fact, "underdogs".

What Sectors Are "Safe" Among the "Dividend Power Dogs" ?

Of eleven sectors, five were represented by the 16 stocks with high earnings and cash margins greater than their announced annual dividends. These included: industrials; real estate; basic materials; utilities; financial services. Six sectors, technology, communication services, consumer defensive, healthcare, energy, and consumer cyclical, were not represented.

The count of 16 "Safe Dividend Power Dogs" by industry showed: (1) industrials, with five; (2) real estate, counted seven; (3) basic materials, showed two; (4) utilities, had one; (5) financial services. had one. The first four sectors identified above were represented in the top ten by yield.

Periodic Safety Check

A previous article discussed the attributes of the 35 "Safe Dividend Power Dogs" stocks from which these sixteen were sorted. You see above the tinted green list that passed the dividend "stress" test. These 16 "Safe Dividend Power 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, Orchid Island Capital, Inc. (NYSE:ORC) on the list below cut its monthly dividend from $18 to $.15 in June, 2015. Also CYS Investments (NYSE:CYS) has annually chopped its quarterly dividend for the past five years. Most recently it cut a $0.26 payout to $0.25 in June 2016, to suit it's cash flow.

Three additional columns of reported cash 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 Searched Out Bargains In "Safe Dividend Power Dogs" Stocks

Ten "Safest" top firms showing the biggest yields December 19 per YCharts data ranked themselves by yield as follows:

Ten top dividend paying stocks were culled by Yield (dividend / price) results verified by Yahoo Finance.

As noted above, top ten "Safe Dividend Power Dogs" included firms from four of eleven sectors in the top ten.

Actionable Conclusion: (1) Analysts Alleged 5 Lowest Priced of Top Ten High Yield "Safe Dividend Power Dogs" To Deliver 14.94% VS. (2) 11.99% Net Gains for All Ten by December 19, 2017

$5000 invested as $1k in each of the five Lowest priced stocks in the top ten "Safe Dividend Power Dogs" December kennel by yield were predicted by analyst 1 year targets to deliver 24.67% more net gain than $5,000 invested as $.5k in each of all ten.

The second lowest priced dividend power dog, Navios Maritime Midstream (NYSE:NAP), was projected to deliver the best net gain of 26.42%.

Ten "Safe Dividend Power Dogs" Showed 24.67% more Gain From 5 Highest Yield, Lowest Priced

Lowest priced five "Safe Dividend Power Dogs" for December 19 were: CYS Investments; Navios Maritime Midstream ; Orchid Island Capital, Inc. ; Ellington Residential (NYSE:EARN); Dynagas LNG Partners (NYSE:DLNG), with prices ranging from $7.96 to $15.28.

Higher priced five "Safe Dividend Power Dogs" for December 19 were: New Residential Investments (NYSE:NRZ); AG Mortgage Investment (NYSE:MITT); Chimera Investment (NYSE:CIM); SunCoke Energy Partners (NYSE:SXCP); Huaneng Power (NYSE:HNP), whose prices ranged from $16.17 to $24.88.

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 stocks listed above were suggested only as decent starting points for a ""Safe Dividend Power Dogs" stock purchase/sale research process in mid-December, 2016. These were not recommendations.

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

The net gain/loss estimates 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.

One of the 16 "Safe Dividend Power Dogs" qualifies as a valuable catch! Find it as one of the now 52 Dogs of the Week I found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information. The dogs of the Week II portfolio is now building with 18 chosen and five documented with quarterly reports.

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 and runner-up underdog from the 52 Dogs of the Week I portfolio, 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!

Root for the Underdog.

Stocks listed above were suggested only as possible reference points for your "Safe Dividend Power Dogs" stock purchase or sale research process. These were not recommendations.

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; indexarb.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo: peopleforanimals2011.wordpress.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.

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