Pro Portfolio Proof IV: 30 'Safer' Dogs From John Rogers Value Stock Portfolio

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Includes: BSAC, CLB, FAF, HMN, IPG, ISCA, MDP, MSFT, NWL, PM, SLB, SNA, SSD, TPR, WMT, WU
by: Fredrik Arnold

Summary

Four methods gauged the dividend safety of John Rogers equities: (1) Free cash flow yields; (2) cash dividend payout ratios; (3) One-year total returns (annual); (4) distribution growth.

Positive, one-year returns narrowed 92 equities from Rogers portfolio (in YCharts) to 38. A sort for free cash flow yields greater than payout yields found 33 "safer" investment prospects 3/24/17.

Top 10 "safer" Rogers Portfolio yields from HMN; WMT; IPG; MDP; COH; WU; FAF; PM; BSAC; ISCA, ranged 2.76% to 4.61%. Free cash flow yields ranged 3.17% to 12.57%.

Matched against top 10 "safer" yielding Dow Dogs, the "safer" Rogers top gain 10 by yield produced 15.5% more dividend at 47% of the aggregate Dow dog price.

Broker targets found 10 "safer" Rogers picks produced 392.11% more gain from $5k invested in the lowest priced five than from $5K invested 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 specifically, these are, in fact, better termed, "underdogs".

10 Top "Safer" Rogers Folio Dogs Represented Three Sectors

Seven of 11 Morningstar sectors were represented by the 33 firms in this John Rogers value portfolio with positive annual returns and whose dividends were backed by sufficient cash cushions as of March 24. The sector representation broke out, thus: Consumer Cyclical (8); Financial Services (9); Consumer Defensive (4); Energy (2); Healthcare (2); Technology (1); Industrials (7); Basic Materials (0); Communication Services (0); Real Estate (0); Utilities (0).

The top 10 Rogers portfolio by yield included the first three sectors on the list above.

33 Rogers Stocks With Positive Returns Were Backed By Cash Flow Margin to Cover Dividends

Periodic Safety Check

You see below the list that passed the portfolio "stress" test. These 33 dogs reported positive annual returns plus sufficient annual cash flow yield to cover their forward estimated annual dividend yield. The margin of cash excess is shown in the bold face "Safety Margin" column.

Financial guarantees, however, are readily redirected by a determined board of directors managing company policy cancelling or varying the payout of dividends to shareholders. This article asserts that adequate cash flow is a strong justification for a company to sustain annual dividend increases.

Three additional columns of financial data listed after the Safety Margin figures revealed payout ratios (lower is better), total annual returns, and dividend growth levels for each stock. These metrics go beyond yield to gauge stock payout reliability.

Total annual returns were used to select the 38 baseline dogs for this article. Those one-year positive returns may give this collection a boost on gains for this coming year. Positive results in all five columns listed after the dividend ratio is an exceptional positive financial signal.

Dividend vs. Price Compared to The Dow Index

10 top "safe" Rogers dividend dog equities by yield were graphed below as of 3/24/17 as compared to those of the Dow. Annual dividend history from $1,000 invested in each of the 10 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) "Safer" Top Rogers Folio Dog Dividend Is 43% Of Price While (2) "Safer" Dow Dog Dividend Is Just 23%

10 top "Safe" Rogers dog aggregate single share price was calculated as 57% of the dividend derived from $10k invested as $1k in each of the top 10 stocks.

Meanwhile, Dow dogs aggregate single share price for top 10 yielding dogs was 77% more than the dividend derived from $10k invested as $1k in each of the top 10 stocks.

As a result, the Dow and Rogers dog overbought conditions (where aggregate single share price of the 10 exceeded projected annual dividend from $10k invested as $1k in each) prove to be both pricey and low-yielding for new investors. Safe dividends can be found whose annual dividend from $1k invested is greater than the single share price paid at purchase.

The Overbought Dow & Soros Portfolios

The Dow Dogs remain overbought and overpriced. Meaning, these are low risk and low opportunity Dow dogs. The "Safer" Dow top 10 average price per dollar of annual dividend was $33.04 as of March 22.

In some contrast to the Dow, "Safer" Rogers Portfolio dividend dogs top 10 average price per dollar of annual dividend was $28.83 as of 3/24/17. That amount is 88% of the price paid for a dollar of "Safer" Dow Dog annual dividend.

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. Brokers Predict A 3.29% One-year Average Upside and 4.21% Net Gain For Top 30 March "Safer" Rogers Dogs

Top dogs on the Rogers "safer" value equity list were graphed above to compare relative strengths by dividend and price as of March 24, 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 10 highest yielding stocks and the aggregate single share prices of those 10 stocks created the data points applied to 2017. Projections based on estimated increases in dividend amounts from $1,000 invested in the 10 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 7.5% lower dividend from $10K invested as $1k in the top 10 March Rogers dogs while aggregate single share price was projected to increase by 3.8% 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 generally not applied (n/a).

A beta 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 Expected Top 10 "Safer" Rogers Dog Stocks to Net 7.6% to 25.7% Gains To March 2018

Four of the 10 top yield distribution Rogers "safe" dogs (shaded in the chart above) were verified as being among the Top 10 gainers for the coming year based on analyst one-year target prices. Thus, the dog strategy for this Rogers portfolio group as graded by analyst estimates for March proved 40% accurate.

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

Schlumberger (NYSE:SLB) netted $257.29 based on mean target price estimates from 39 analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 3% more than the market as a whole.

Newell Brands (NYSE:NWL) netted $197.96 based on dividends plus a median target price estimate from 18 analysts less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.

First American Financial (NYSE:FAF) netted $153.29 based on estimates from five analysts plus projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 9% less than the market as a whole.

Core Laboratories (NYSE:CLB) netted $141.47 based on target prices from 19 analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 46% more than the market as a whole.

The Interpublic Group (NYSE:IPG) netted $123.21 based on estimates from 18 analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 54% more than the market as a whole.

Coach (COH) netted $112.00, based on dividend, plus a median target price estimate from 34 analysts, less broker fees. The Beta number showed this estimate subject to volatility 54% less than the market as a whole.

Simpson Manufacturing (NYSE:SSD) netted $110.66, based on dividends plus target price estimates from three analysts minus broker fees. The Beta number showed this estimate subject to volatility 47% more than the market as a whole.

Snap-on (NYSE:SNA) netted $90.08 based on dividends plus the median of annual price estimates from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.

Microsoft (NASDAQ:MSFT) netted $79.72 based on estimates from 32 analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 3% more than the market as a whole.

Wal-Mart Stores (NYSE:WMT) netted $76.11 based on estimates from 37 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 86% less than the market as a whole.

Average net gain in dividend and price was 13.42% on $1k invested in each of these 10 stocks. This gain estimate was subject to average volatility 1% less than the market as a whole.

Actionable Conclusion (5): (Bear Alert) Analysts Anticipated Three "Safe" Rogers Dogs To Average 13.24% Losses By March 2018

Three probable losing trades revealed in YCharts data for 2018 were:

Meredith (NYSE:MDP) projected a loss of $35.38 based on dividend and a median target price estimate from six analysts, including $20 of broker fees. The Beta number showed this estimate subject to volatility 12% more than the market as a whole.

Banco Santander Chile (NYSE:BSAC) projected a loss of $41.88 based on dividend and a median target price estimate from 13 analysts, including $20 of broker fees. The Beta number showed this estimate subject to volatility 16% less than the market as a whole.

Horace Mann Educators (NYSE:HMN) projected a loss of $319.99 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 1% less than the market as a whole.

Average net loss in dividend and price was 13.24% on $1k invested in each of these 10 stocks. This gain estimate was subject to average volatility 2% less than the market as a whole.

Dog Metrics Uncovered Big Bargains In Small "Safe" Rogers Value Dogs

10 "Safe" top Rogers portfolio equities that showed the biggest yields March 24 per YCharts data ranked themselves by yield as follows:

Analysts Cast Five Lowest Price Rogers Folio Stocks To Deliver 4.78% VS. (2) 0.97% Net Gains from All Ten Come March 2018

$5,000 invested as $1k in each of the five lowest priced stocks in the "safe" 10 Rogers kennel by yield were determined by analyst one-year targets to deliver 392.11% more net gain than $5,000 invested as $.5k in all ten. The fifth lowest priced safe dividend Rogers Dog, First American Financial (FAF) showed the best net gain of 15.33% per analyst targets.

Lowest priced five "safer" Rogers Portfolio dogs as of March 24 were: The Western Union (NYSE:WU); The Interpublic Group; Banco Santander Chile; International Speedway (NASDAQ:ISCA); First American Financial, with prices ranging from $20.25 to $38.49

Higher priced five Safe Dividend Rogers Portfolio dogs as of March 24 were: Coach; Horace Mann Educators; Meredith (MDP); Wal-Mart Stores (WMT); Philip Morris International (NYSE:PM), with prices ranging from $39.09 to $111.79.

This distinction between five low-priced dividend dogs and the general field of 101 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% 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 and this instablog to aid your safe investing. --Fredrik Arnold

Stocks listed above were suggested only as possible starting points for your safest Rogers Portfolio dog dividend stock research process. These were not recommendations.

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

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

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.