Are 'Safe' Dividend Energy Dogs Real Or Imaginary? 18 Were Found For February

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Includes: ALDW, ARLP, BPT, CCLP, CELP, CEQP, GLOP, GPP, PBFX, SDLP, SMLP, SNMP, SRLP, WNRL
by: Fredrik Arnold

Summary

18 of 50 Energy Sector stocks showed free cash flow yields greater than dividend yields 2/6/17. Those 18 were seemed "safe" based on current cash to cover dividends.

Top 10 "safe" February Energy sector annual yields ranged 8.56% to 13.66% from GLOP; SRLP; CEQP; PBFX; GPP; SMLP; SPP; CCLP; BPT; CELP. Their cash flow yields ranged 9.71%-48.62%.

Besides safety margin, Energy dogs also reported payout ratios (lower is better), total annual returns, and dividend growth, as of 2/6/17 to further distinguish their strength.

Matched against top ten Dow Dogs, the "safe" Energy ten produced 284% more dividend at 25% of the Dow Dog price.

Analyst one year targets revealed that safe Energy Sector stocks cast 13.01% more gain from $5k invested in the lowest priced five than from $5K invested in all top 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, best called, "underdogs".

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

Five of six energy industries composing the sector, were represented by those 18 firms whose dividends were bolstered by adequate cash as of February 6. The industry representation broke-out, thus: Equipment & Services (3); Refining & Marketing (3); E&P (2); Midstream (9); Drilling (1).

Top ten energy sector dogs showing the widest safety margin of cash to cover dividends by this screen as of February 6 represented the same five industries: (1) Midstream with five representative stocks; (2) Refining & Marketing with two stocks; (3) E&P had one representative; (4) Equipment & Services with one company; (5) Drilling one representative in the top ten had the widest margin.

Energy Firms With "Safe" Dividends

Periodic Safety Inspection

You see grouped below the list that passed the Energy dog "safety" check with 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 strengths however are easily overcome by stern or spendthrift boards of directors ascribing company policies canceling or varying the payout of dividends to shareholders. For example, BP Prudhoe Bay (NYSE:BPT) on the list has paid a variable quarterly dividend as a strategy to manage its cash requirements. That dividend has ranged from $0.27 in July 1989, down to $0.04 in 1995, up to $3.046 in July 2008. BPT only missed two quarters and those were in 1999. Another example from a relative newcomer, CSI Compressco LP, (NASDAQ:CCLP) shows quarterly partner distributions since 2011. The company steadily increased payouts from $0.3875 per unit per quarter to a peak of $0.5025 as of October, 2015 before slashing their quarterly distribution back to $0.375 in January 2016.

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. Positive results in all five columns after the dividend ratio is remarkable as a solid financial "safety" signal.

Dividend vs. Price Compared to Dow

Ten top "safe" energy dividend dog stocks by yield were graphed below as of 2/6/17 and compared to those of the Dow. Annual dividend history from $1000 invested in each of the ten highest yielding stocks and their aggregate single share price created the data points shown in green for price and blue for dividends.

Actionable Conclusions: (1) Energy Dogs Retreated, as (2) Dow Dogs Mixed Down Into February

Ten top Energy "Safe" dogs increased in dividend and dropped in price after Fall to sound a retreat. Aggregate dividend from $10k invested as $1k in each of the top ten stocks soared 36% since November while total single share price of those ten tumbled 31% for the period.

The Energy "safe dividend" top ten pulled back from the overbought zone and so did not join the Dow and S&P 500 Aristocrats with overpriced portfolios.

Meanwhile, Dow dogs mixed down to a lower level of overbought. The Dow 10 showed sagging annual dividend from $10k invested as $1K in each of the top ten, down 0.16% after October, while aggregate single share price fell 1.3%.

As a result, the Dow dogs overbought condition (where aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k in each) shrank a little.

The Overbought Dow

Since March 2016 when the overbought gap between low dividend from $1k investments and high aggregate top ten price was $358 or 94%, the chasm grew to $446 or 119% by October 2016 but the February gap retreated to $441 or 118%.

The Dow Dogs remain overbought and overpriced. Meaning, these are low risk and low opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend was $27.72 February 3.

In great contrast to the Dow, Safe Energy dividend dog top ten average price per dollar of annual dividend was $9.74 as of 2/6/17. That's nearly 2.85 times less than the price for a dollar of Dow annual dividends. Matched against top ten Dow Dogs, the "safe" Energy ten produced 284% more dividend at 25% of the Dow Dog price.

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" metric, analyst mean price target estimates provided another tool to dig out bargains.

Actionable Conclusion (3): Wall St. Wizards Forecast A 9.6% 1 yr. Average Upside and 17.2% Net Gain "Safe" Energy Stocks

Top dogs on the "Safe' Energy stock list were graphed above to compare relative strengths by dividend and price as of February 6, 2017 with those projected by analyst mean price target estimates to the same date in 2018.

Historic prices and actual dividends paid from $10,000 invested as $1K in each of the ten highest yielding stocks and the aggregate single share prices of those ten stocks created the data points applied to 2017. Projections based on estimated increases in dividend amounts from $1000 invested in the ten highest yielding stocks and aggregate one year analyst mean target prices as reported by Yahoo Finance created the 2018 data points in blue for dividend and green for price. Note: one year target prices from one analyst were not applied (n/a).

Analysts projected a 5.9% lower dividend from $10K invested as $1k in the top ten February Health dogs while aggregate single share price was projected to increase by 5.7% 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 above chart. Three to nine analysts were considered optimal for a valid projection estimate. Estimates provided by one analyst were not applied (n/a).

A beta (risk) ranking for each stock was provided in the far right column. 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 opposed to market direction.

Actionable Conclusion (4): Analysts Forecast Top Ten Energy "Safe" Dog Stocks to Net 14.7% to 70.9% Gains By February, 2018

Six of the ten top dividend Energy dogs (shaded in the chart above) were verified as being among the Top ten gainers for the coming year based on analyst 1 year target prices. Thus the dog strategy for this Health group as graded by analyst estimates for January proved 60% accurate.

Ten probable profit generating trades were illustrated by YCharts analytics for 2018:

Seadrill Partners (NYSE:SDLP) netted $709.41 per estimates from two analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 114% more than the market as a whole.

PBF Logistics (NYSE:PBFX) netted $334.77 based on estimates from six analysts plus dividends less broker fees. A Beta number was not available for PBFX.

Archrock Partners (NASDAQ:ARLP) netted $255.07 based on nine analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 100% more than the market as a whole.

Sanchez Production (SPP) netted $249.39 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 9% opposite the market as a whole.

Alon USA Partners (NYSE:ALDW) netted $215.96 based on dividends plus median target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 4% more than the market as a whole.

Summit Midstream Partners (NYSE:SMLP) netted $214.41 based on mean target price estimates from twelve analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 74% more than the market as a whole.

Sprague Resources (NYSE:SRLP) netted $210.28 based on target price estimates from five analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 45% greater than the market as a whole.

GasLog Partners (NYSE:GLOP) netted $152.93 based on median target estimates from ten analysts, plus dividends, less broker fees. A Beta number was not available for GLOP.

Cypress Energy Partners (NYSE:CELP) netted $150.22, based on dividends only with no target price estimates from analysts but with broker fees subtracted. The Beta number showed this estimate subject to volatility 4% opposed to the market as a whole.

Western Refining (NYSE:WNRL) netted $147.36, based on dividend, plus a median target price estimate from five analysts, less broker fees. The Beta number showed this estimate subject to volatility 17% less than the market as a whole.

Average net gain in dividend and price was 26.4% on $1k invested in each of these ten "Safe" Energy dog stocks. This gain estimate was subject to average volatility 13% more than the market as a whole.

Actionable Conclusion (7): (Bear Alert) Analysts Expected One "Safe" Energy Dog To Make A 8.35% Loss By February, 2018

One probable losing trade revealed by Thomson/First Call in Yahoo Finance by 2018 was:

Crestwood Equity Partners (NYSE:CEQP) projected a loss of $83.52 based on dividend and a median target price estimate from ten analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 143% more than the market as a whole.

Dog Metrics Revealed Bargains From Lowest Priced "Safe" Dividend Energy Sector Stocks

Ten "Safe" Energy firms with the biggest yields February 6 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: (1) Analysts Predict 5 Lowest Priced, of Ten "Safe" Dividend High Yield Energy Sector Dogs, Will Deliver 15.72% VS. (2) 13.91% Net Gains from All Ten by February, 2018

$5000 invested as $1k in each of the five lowest priced stocks in the "safe" ten Energy Sector pack by yield were determined by analyst 1 year targets to deliver 13.01% more net gain than $5,000 invested as $.5k in all ten. The fifth lowest priced safe dividend Energy dog, PBF Logistics showed the best net gain of 33.48% per analyst targets.

Lowest priced five "safe" Energy dogs as of February 6 were: Cypress Energy Partners; CSI Compressco; Sanchez Production; Green Plains Partners (NASDAQ:GPP); PBF Logistics, with prices ranging from $11.90 to $19.90.

Higher priced five "Safe" Dividend Energy dogs as of February 6 were: GasLog Partners; Summit Midstream Partners; Sprague Resources; Crestwood Equity Partners, and BP Prudhoe Bay with prices ranging from $22.90 to $30.35.

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.

Annual Analyst Accuracy

You see below the one year result of ten analyst target estimates for Energy stocks (then part of the Yahoo Basic Materials sector) from this article in 2016. These were applied to the "basic method" Michael B. O'Higgins employed for beating the Dow. The key shows: losses in a reddish tint; poor results tinted yellow; gains tinted green; no tint means no difference.

The "basic method" top ten annual analyst accuracy price movement score from February 11, 2016 was two losses against eight gaining. Nine dividends decreased, while one was unchanged. All ten yields decreased. The 80% upside average over a year was caused by two firms no longer in business. The top of the dog energy/basic materials list was a dangerous place one year ago. The energy sector could be diagnosed in recovery for the past year.

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. --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.

One of these Energy sector dividend pups qualified as a terrible catch! Find it as one 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 from the 52 Dogs of the Week, 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!

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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: ebay.com.

Disclosure: I am/we are long GE, 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.