Can High Yield Cursed By An "Avoid" Rating Be Overcome By "Safe" Cash Flow Yield Greater Than Dividend Yield?
A quest for outstanding underdog stocks led the author to peruse "Y Ratings." This set of instant curses or blessings declare every YCharts equity listing "Avoid" or "Neutral" or "Attractive" or "Unrated." One-hundred-eighty-seven 5%+yield dogs tagged "Avoid" by YCharts showed yields to 18.69% Friday 1/13/17. Eighty-five of that group screened for greater than 8% dividend yields and cash flow yields to "safely" cover dividends, provided the forty for this article.
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, best called, "underdogs".
These 85 "Safe" Cursed Dividend Dogs Fetched 8%+ Yield
Broker one-year target results from Yahoo! Finance based on market closing prices on Friday, 1/13/17 for forty stocks from nine of eleven Morningstar sectors were screened for cash flow to cover dividend, and yields exceeding 8% to reveal the actionable conclusions discussed below.
See Dow 30 article for an explanation of the term "dogs" for stocks reported based on Michael B. O'Higgins book "Beating The Dow" (HarperCollins, 1991), now named Dogs of the Dow. O'Higgins system works to find bargains in any collection of dividend-paying stocks. Utilizing analyst price upside estimates, expanded the stock universe to include popular growth equities, as desired.
Dog Metrics Extracted Bargains
The forty 8%+ yield "Safe" Cursed dividend dogs were culled from the larger list by showing cash flow yield exceeding dividend yield. Whether their yields can overcome market cross-winds in the nine sectors represented, is considered below. Closed-End Funds, ETFs, and ETNs were excluded here, but Real Estate Investment Trusts, MLPs, Royalty Trusts, and Business Development Companies were recruited for the list along with common stocks.
Ten "Safe" Cursed dividend dogs by best yields populated five sectors: one each in communication services, and industrials; three from financial services; two in real estate; three in energy.
Top-dog, B Communications (NASDAQ:BCOM)  led the list with a 18.69% yield estimate. Three financial firms placed second, seventh and ninth: Arlington Asset Investment (NYSE:AI) ; OHA Investment (NASDAQ:OHAI) ; Fifth Street Finance (FSC) .
Third place went to the lone industrial firm in the top ten: Navios Maritime Midstream (NYSE:NAP) . Fourth place was claimed by the first of two Real Estate sector dogs on the list, Orchid Island Capital (NYSE:ORC) . The other real estate firm placed tenth, CYS Investments (NYSE:CYS) .
The remaining three energy representatives placed fifth, sixth, and eighth: CSI Compressco (NASDAQ:CCLP) ; Cypress Energy Partners (NYSE:CELP) ; Sanchez Production (SPP) . These complete the Cursed "Safe" dividend dog team list for January 13.
Actionable Conclusions: (1) "Safe" Cursed DiviDogs Charged As (2) Dow Dogs Retreated Into 2017
The dogs dropped in dividend and rose in price to make their charging bull move. Dividend from $10k invested as $1K in each dog tumbled 0.95%, while total single share price of those ten equities rose 6.24% after December.
Dow dogs retreated as aggregate single share price for the ten fell 0.36% between December 19 and January 13, while annual dividend from $10k invested as $1K in each of the top-ten Dow dogs popped up 1.23% for the period according to IndexArb.com.
As a result, the Dow dogs' overbought condition (in which aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k each in those ten) retreated from its record girth.
Actionable Conclusion (3): Dow Dogs Become Less Overbought
Historically, the overhang was $278 or 70% in December, 2015. April, 2016 put the number up to $398 or 107%. July set the annual record at $446 or 125%, September narrowed the gap to $378 or 101%. December 2016 set the record high at $503 or 139%, while January retreated to $496 or $135%.
This gap between high share price and low dividend per $1k invested shows an overbought condition. Meaning, no matter how you chart it, these are low-risk and low-opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend was $27.85 as of 11/13/17.
Conversely, the "Safe" Cursed chart shows those dogs to be retreating from buy points as higher-risk and also high-potential pups. The "Safe" Cursed stocks top ten average price per dollar of annual dividend was $6.73 as of 1/13/17.
Should Dow prices ever to move to a level 30-35% lower, they could again become attractive dividend buys! As it stands, the Dow has become an index of growth stocks as their dividends have progressively been devalued by excessively high market prices.
Actionable Conclusions: (4) Ten Top "Safe" Cursed DiviDogs Pursue 17.72% Average Upsides Into January 2018; (5) Ten Bottom "Safe" Cursed Dogs Averaged -3.83% Yield
To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metrics, analyst mean price target estimates, these provided another tool to dig out bargains.
Actionable Conclusions: Wall St. Wizards Weighed (6) 4.79% Average Upsides, & (7) 14.87% Average Net Gain from Top 30 Dividend "Safe" Cursed DiviDogs By January, 2018
Top thirty dogs from the "Safe" Cursed list were graphed below as of January13, 2017 as compared to analyst mean price target estimates for the same date in 2018.
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 projected annual per share dividend amounts to find the dividend return. Thereafter the analyst mean target price was used to gauge stock price upsides and net gains including dividends less broker fees as of 2018.
Historic prices and actual dividends paid from $30,000 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 2017. 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 created the 2018 data points green for price and blue for dividend.
Analyst data reported by Yahoo finance projected a 3.6% lower dividend from $30K invested as $1k in each stock in this group while aggregate single share price was projected to increase 5.6% 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 chart. Three to nine analysts had a better history of estimate accuracy .
A beta (risk) ranking for each 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 (8): Analysts Alleged Ten "Safe" Cursed DiviDogs Would Net 17.11% to 36.93% By January 2018
Only two of the ten top dividend yielding Safe" Cursed 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 20% accurate.
Ten probable profit generating trades were revealed by Thomson/First Call in Yahoo Finance into 2017:
Crius Energy (KWH-UN.TO) was projected to net $369.62 based on dividends plus a median target price estimate from six analysts less broker fees. The Beta number showed this estimate subject to volatility 27% less than the market as a whole.
PBF Logistics (NYSE:PBFX) was projected to net $355.51 based on dividend plus median target price estimates from six analysts less broker fees. A Beta number was not available for PBFX.
Navios Maritime Acquisitions (NYSE:NNA) was projected to net $326.15 based on dividends plus a median target price estimate from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 53% more than the market as a whole.
KCAP Financial (NASDAQ:KCAP) was projected to net $294.07 based on estimates from three analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 80% more than the market as a whole.
CNX Coal Resources (NYSE:CNXC) was projected to net $293.88 based on estimates from seven analysts plus dividends less broker fees. A Beta number was not available for CNXC.
Sanchez Production was projected to net $293.83 based on a median target price estimate from five analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 3% opposite the market as a whole.
CM Finance (NASDAQ:CMFN) was projected to net $204.49 based on dividends plus a median target price estimate by two analysts less broker fees. A Beta number was not available for CMFN.
CYS Investments was projected to net $179.49 based on dividends plus the median target price estimate from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 40% less than the market as a whole.
Capitala Finance (NASDAQ:CPTA) was projected to net $179.13 based on dividends plus median target price estimates from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 2% more than the market as a whole.
Invesco Mortgage Capital (NYSE:IVR) was projected to net $171.12 based on dividends plus median target price estimates from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 18% less than the market as a whole.
The average net gain in dividend and price was 26.67% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility equal to the market as a whole.
Actionable Conclusion (9): (Bear Alert) Analysts Saw One "Safe" Cursed DiviDog Making A 11.34% Loss By January, 2018
A probable losing trade revealed by Thomson/First Call in Yahoo Finance by 2018 was:
RAIT Financial Trust (NYSE:RAS) was projected to lose $113.41 based on dividend and a median target price estimate from five analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 73% more than the market as a whole.
3 Month Price Histories of Highest Upside VS. Lowest Downside Analyst Projected Stocks Show A Contrarian Perspective
Analyst designated and red-lined "loser" RAIT Financial Trust shows a 15.8% gain on the past three month price chart. However, analyst upside star stock, Crius Energy Trust (KWH-UN.TO) shows an 3% decline. These real recent price trends contradict analyst projections. Momentum backs neither Wall Street Wizard prediction for underdog nor top dog. "Fair is foul and foul is fair, hover through fog and filthy air!"
This evidence supports Michael O'Higgins "media index" admonition. He advises investors to pay close attention to "magazine covers, news headlines, and ads placed by investment advisors, primarily in Barron's." He concludes that "you can make out like a bandit by acting the opposite way." Sometimes analyst target price targets can be similar contrarian indicators. Just like now.
Analysts Targets Predict Safe Cursed DiviDogs Will Find 3.89% Less Return From 5 Lowest-Priced Come January, 2018
Safe Cursed Dog stocks to buy and hold for at least one year were reported based on: (1) Yields over 10%; (2) Price Upside to 2018; (3) Analyst 1yr. target upsides; (4) Cash Flow Yield Exceeding Dividend Yield.
As mentioned above, cursed dividend dogs by best yields populated five sectors: one each in communication services, and industrials; three from financial services; two in real estate; three in energy.
Actionable Conclusions: (10) 5 Lowest-Priced of the Top Ten Highest-Gaining "Safe" Cursed DiviDogs Were Estimated to Deliver 13.9% Vs. (11) 14.46% Net Gains for All Ten as of January 13, 2018
$5000 invested as $1k in each of the five lowest-priced stocks in the top ten 10%+ Yield dividend dog kennel by gains were predicted by analyst 1-year targets to deliver 3.89% LESS net gain than the same amount invested in all ten. The eighth lowest-priced cursed dividend dog, Sanchez Production , was projected to deliver the best net gain of 29.38%.
The five lowest-priced cursed dividend dogs for January 13 were: OHA Investment; Fifth Street Finance; CYS Investments; CSI Compressco; Orchid Island Capital, with prices ranging from $1.81 to $11.43.
The higher-priced cursed dividend dogs for January 13 were: Navios Maritime Midstream; Cypress Energy Partners; Sanchez Production; Arlington Asset Investment; B Communications, whose prices ranged from $11.49 to $21.09.
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 stocks listed above were suggested only as reference points for a 10%+ Yield dividend dog stock investment research process into October 2016. These were not recommendations.
Three of these 10%+Yield dividend pups are listed among the now 52 Dogs of the Week discoveries on The Dividend Dog Catcher™ premium site. Click here to subscribe or get more information.
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The gains/declines as reported do not factor in any tax problems resulting from dividend, profit, or return of capital distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.
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; dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. BewareDog photo: meh.ro.
Disclosure: I am/we are long FSC, CSCO, PFE, 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 covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.