'Safe' 10%-Plus Yield Dogs Tag Overseas Shipholding As Top Gainer For February

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Includes: AI, BCOM, BPT, CELP, CLNS, CNXC, CYS, EFC, KCAP, NAP, ORC, OSG, PRBAY, PSEC, SXCP, TCRD, TICC
by: Fredrik Arnold

Summary

34 safe dividend dogs have: yields over 10%; minimum $100M market capitalization; price upside into 2017; analyst one-year target upside to 2018; and cash flow to cover dividend.

117 were screened positive for 10%+ forward yield, $100M+ market cap as of Feb. 13. Adequate cash flow margin and sector leadership winnowed the list to 41 for this article.

10%+ top 10 dividend dogs by yield, BPT, SXCP, CELP, ORC, TICC, BCOM, NAP, AI, PRBAY, and OSG mixed up into 2017 as Dow dogs retreated.

10%+ top 10 gainers were: TCRD; CYS; PRBAY; SXCP; EFC; NAP; KCAP; CNXC; CLNS, with OSG leading.

10%+ top 10 safe dividend dogs projected 26.53% more net gain from $5k invested in the lowest priced five than from $5K in all 10.

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". In other words, the higher the yield, the lower the dog.

These 117 Dividend Dogs Promised 10%+ Forward Yield

Broker one-year target results from Yahoo! Finance based on market closing prices on February 13 for forty-one stocks from all eleven Morningstar sectors passed the screen test for cash flow to cover dividend. Their yields ranged 5.32% to 39.02% and they revealed the actionable conclusions discussed below.

See my most recent 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 one high yield dividend dogs were culled from the larger list by showing cash flow yield exceeding dividend yield. Whether their yields can be sustained in the current market in all eleven sectors, 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 10%+ yield dividend dogs by best yields included six sectors: two industrials, three from financial services, two in energy, one each in communication services, real estate, and basic materials.

Top-dog, Overseas Shipholding Group (NYSE:OSG) [1] led the list and the two industrial representatives with a 39.02% yield estimate. The other top ten industrial representative placed fourth, Navios Maritime Midstream (NYSE:NAP) [4].

Three financial firms placed second, third, and sixth: Parana Banco (OTCPK:PRBAY) [2]; Arlington Asset Investment (NYSE:AI) [3]; TICC Capital (NASDAQ:TICC) [6].

The lone communication services firm in the top ten placed fifth, B Communications (NASDAQ:BCOM) [5]. A single real estate firm placed seventh, Orchid Island Capital (NYSE:ORC) [7], while the lone basic materials representative took the ninth place, SunCoke Energy Partners (NYSE:SXCP) [9].

The remaining top ten positions were occupied by companies from the energy sector, in eighth and tenth: Cypress Energy Partners (NYSE:CELP) [8], and BP Prudhoe Bay (NYSE:BPT) [10].

Actionable Conclusions: (1) 10%+ Yield Dogs Mixed Up and (2) Dow Dogs Retreated Into 2017

The 10%+ Yield dogs upped their dividend and rose in price to make their mix-up move. Dividend from $10k increased 22%, while total single share price of those ten equities rose 45% after November.

Dow dogs retreated as aggregate single share price for the ten fell 4.6% between December 19 and February 13, while annual dividend from $10k invested as $1K in each of the top-ten Dow dogs increased 1.4% 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) shrank.

Actionable Conclusion (3): Dow Dogs Remain Overbought

Historically, the overhang was $398 or 107% in April, 2016. July set the annual record at $446 or 125%, September narrowed the gap to $378 or 101%. December 2016 set a new record high at $503 or 139%. February put it down to $459 or 125%.

This gap between high share price and low dividend per $1k invested shows an overbought condition. Meaning, no matter which chart you read, these are low-risk and low-opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend was $27.96 as of 2/13/17.

Conversely, the 10%+ Yield chart shows those dogs to be reaching buy points as higher-risk and also high-potential pups. The 10%+ Yield stocks top ten average price per dollar of annual dividend was $6.30 as of 2/13/17.

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. A bullish market kills yields. The lofty DOW Index now contains growth stocks, disguised as dividend dogs.

Actionable Conclusions: (4) Ten Top 10%+ Yield Dogs Pursue 22.67% Average Upsides Into February 2018; (5) Ten Bottom 10%+ Yield Dogs Produced Averaged -8.21%

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 Wished (6) 5.34% Average Upsides, & (7) 18.19% Average Net Gain from Top 30 Dividend 10%+ Yield Dogs By February, 2018

Top thirty dogs from the 10%+ Yield list were graphed below as of 2/13/17 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 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 4.8% lower dividend from $30K 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 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 10%+ Yield Dogs Would Net 16.67% to 104.7% By February 2018

Four of the ten top dividend yielding 10%+ Yield 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 40% accurate.

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

Overseas Shipholding Group was projected to net $1,047.07 based on dividend plus median target price estimates from two analysts less broker fees. A Beta number was not available for OSG.

Colony NorthStar (NYSE:CLNS) was projected to net $699.31 based on dividends plus median target price estimates from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 33% less than the market as a whole.

CNX Coal Resources (NYSE:CNXC) was projected to net $413.33 based on dividends plus a median target price estimate from seven analysts less broker fees. A Beta number was not available for CNXC.

KCAP Financial (NASDAQ:KCAP) was projected to net $268.18 based on a median target price estimate from two analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 78% more than the market as a whole.

Navios Maritime Midstream was projected to net $221.75 based on dividends plus a median target price estimate from five analysts less broker fees. A Beta number was not available for NAP.

Ellington Financial (NYSE:EFC) was projected to net $200.26 based on estimates from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 71% less than the market as a whole.

SunCoke Energy Partners was projected to net $199.40 based on dividends plus median target price estimates from thee analysts less broker fees. The Beta number showed this estimate subject to volatility 29% more than the market as a whole.

Parana Banco was projected to net $181.90 based on dividends alone less broker fees, with no median target price estimate by analysts. The Beta number showed this estimate subject to volatility 12% opposite the market as a whole.

CYS Investments (NYSE:CYS) was projected to net $172.89 based on dividends plus the median target price estimate from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 41% less than the market as a whole.

THL Credit (NASDAQ:TCRD) was projected to net $166.72 based on estimates from ten analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 4% less than the market as a whole.

The average net gain in dividend and price was 35.7% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 22% less than the market as a whole.

Actionable Conclusion (9): (Bear Alert) Analysts Expected Two "Safe" 10%+ Yield Dogs To Average A 9.8% Loss by February 2018

Two probable losing trades revealed by Thomson/First Call in Yahoo Finance by 2018 was:

Prospect Capital (NASDAQ:PSEC) projected a loss of $40.68 based on dividend and a median target price estimate from eight analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 56% less than the market as a whole.

TICC Capital projected a loss of $156.19 based on dividend and a median target price estimate from four analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 46% less than the market as a whole.

The average net loss in dividend and price was 9.84% on $2k invested as $1k in each of these two dogs. This loss estimate was subject to average volatility 50% less than the market as a whole.

Price Histories of Highest Upside VS. Lowest Downside Analyst Projected Stocks Show Broker Bias

Analyst designated and red-lined "loser" TICC Capital shows an 18% gain on the past month price chart. However, analyst upside star stock, Overseas Shipholding Group shows just a 3% incline. These real recent price trends contradict analyst projections. Momentum backs neither Wall Street Wizard prediction for underdog nor top dog.

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 as graphed above..

10%+ Yield Dividend Dogs Find 26.53% More Return From 5 Lowest-Priced Come February 2018

10%+ yield stocks to buy and hold for at least one year were reported based on: (1) Yields over 10%; (2) Minimum $200M Market Capitalization; (3) Price Upside to 2017; (4) Analyst 1yr. target upsides; (5) Cash Flow Yield Exceeding Dividend Yield.

As mentioned above, seven of eleven Morningstar sector leaders placed dogs in the top ten 10%+ yielder list for February. Only four sector leader yields fell below the 10% bar.

Actionable Conclusions: (10) 5 Lowest-Priced of the Top Ten Highest-Gaining 10%+ Yield Dogs Were Estimated to Deliver 26.65% Vs. (11) 21.06% Net Gains for All Ten as of February, 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 26.53% more net gain than the same amount invested in all ten. The very lowest-priced 10+ Yield dividend dog, Overseas Shipholding Group , was projected to deliver the best net gain of 104.71%.

The five lowest-priced 10%+ Yield dogs for February 13 were: Overseas Shipholding Group; TICC Capital; Navios Maritime Midstream ; Cypress Energy Partners ; Orchid Island Capital , with prices ranging from $4.92 to $12.51.

The higher-priced 10%+ Yield dogs for February 13 were: Arlington Asset Investment; Parana Banco; SunCoke Energy Partners; B Communications; BP Prudhoe Bay, whose prices ranged from $14.9 to $30.95.

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 February 2017. These were not recommendations.

See my instablog for specific instructions about how to best apply the dividend dog data featured in this article. - Fredrik Arnold

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 learn more and subscribe.

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, plus a preview of my 52 Dogs of the Week II 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.

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

Disclosure: I am/we are long CSCO, GE, PFE, VZ, FSC.

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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